On July 12, risk-sensitive currencies traded above their recent lows against the U.S. dollar and Japanese yen. The decline came as concerns about a slowdown in the global economic recovery have subsided for now.
Market participants are watching the outlook for U.S. inflation and the speed of the Fed’s future policy tightening. The consumer price data is due on Tuesday, while Fed Chair Jerome Powell’s testimony is scheduled on Wednesday.
According to Shinichiro Kadota, senior FX strategist at Barclays, if we see strong data, the Fed could bring forward their projection for their first-rate hike further from their current forecast of 2023. Remarkably, it means they have to finish tapering sooner.
The euro traded slightly higher at $1.1868. Remarkably, the currency hit a three-month low of $1.17815 on Wednesday.
The euro traded at 130.73 yen against the Japanese yen. The pair hit a 2-1/2-month low of 129.63 yen on Thursday.
The British pound traded at $1.3887. Meanwhile, the risk-sensitive currency, the Australian dollar, traded at $0.7472. The currency was traded at $0.7410 on Friday, close to a seven-month low.
Risk currencies declined earlier last week as investors curtailed their bets on them. The decline came as economic data from many countries dropped short of the market’s expectations.
Additionally, concerns about new COVID-19 variants also added to the cautious mood.
Thai baht had declined by around 5% against the U.S. dollar in a month. Remarkably, the currency is still above Friday’s low.
On July 12, the Chinese yuan was a tiny bit firmer at 6.4742 against the dollar. Meanwhile, Chinese shares and bonds increased.
A recovery in risk sentiment hampered the yen. The Japanese yen traded at 110.17 yen per dollar. Significantly, it hit a one-month peak of 109.535 on Thursday.
Many investors are waiting for Tuesday’s U.S. consumer price data for June.
Economists polled by Reuters anticipate core CPI to have increased 0.4% from May and 4.0% from a year earlier after two straight months of sharp gains in prices.
Any clues that inflation could be more persistent than anticipated could lift expectations the fed may exit from current stimulus sooner. Remarkably, that would support the greenback versus other major currencies.
However, more benign data could make investors think the U.S. central bank can maintain an easy policy framework for longer. It would prompt more bets on risk assets, as well as risk-sensitive currencies.
In cryptocurrencies, the world first- and second-largest cryptocurrencies were little moved. Bitcoin traded at $34,337, while Ethereum traded at $2,150.
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