US dollar slips as markets reassess Fed rate path

U.S. dollar banknotes are displayed in this illustration taken February 14, 2022. REUTERS/Dado Ruvic

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  • US dollar on pace for first weekly decline this month
  • US rate hike bets reduce aggressive Fed tightening path
  • Increase in sales of new homes in the United States; Michigan sentiment worsens

LONDON/NEW YORK, June 24 (Reuters) – The U.S. dollar slipped on Friday and was on course for its first weekly decline this month as traders cut bets on where interest rates could peak and gave their views on the timing of interest rates. reductions to counter a possible recession.

An important factor this week was the fall in oil and commodity prices, which eased inflation fears and allowed equity markets to rebound. This eroded the safe-haven supply that boosted the dollar against other major currencies.

“Falling commodity prices could help bring headline inflation down – especially in the fall months – reducing the need for aggressive monetary tightening,” said Karl Schamotta, chief market strategist at payment company Corpay in Toronto.

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“Mid-curve interest rate expectations are also down as market participants bet the Fed will tighten excessively in response to rising consumer inflation expectations – and then be forced to reverse the trend. leadership,” he added.

US rate futures were pricing in a 73% chance of a 75 basis point hike at the July meeting. For September, the market priced in an increase of 50 basis points.

Late morning in New York, the dollar index, which measures the US unit against the six major currencies, fell 0.3% to 104.06.

The safe-haven greenback slid further after data showed new home sales jumped 10.7% to a seasonally adjusted annual rate of 696,000 units last month. The May sales pace was revised up to 629,000 units from the previously reported 591,000 units. Read more

The University of Michigan Consumer Sentiment Survey showed mixed results, with sentiment deteriorating in June to 50, from a final reading in May 58. But the reading of inflation expectations in five years rose to 3.1 from the preliminary estimate of 3.3% in mid-June. . Read more

The dollar, up about 9% this year, has lost some luster since investors began betting that the Fed could ease the pace of rate tightening after another 75 basis point hike in July. They now see rates peak next March around 3.5% and fall almost 20 basis points by July 2023. read more

That rate hike pushed 10-year Treasury yields to two-week lows, while the dollar index lost 0.5% this week.

For now though, Fed Chairman Jerome Powell has underscored the central bank’s “unconditional” commitment to controlling inflation. read more Fed Governor Michelle Bowman also backed 50 basis point hikes for the “next” meetings after July. Read more

Analysts have noted a revaluation of terminal rates in the developed world as fears of recession grow.

“Market price revisions…have held back the dollar, but an offsetting force is the risk of a global slowdown. The Fed is pretty much on autopilot. Until it eases the brakes, weakness of the dollar will be limited,” he added. said Stephen Gallo, BMO Capital Markets strategist.

“Rate hikes are also being removed from the euro and pound markets,” he noted.

The Japanese yen, sensitive to changes in US rates, fell 0.2% to 135.20 per dollar.

The euro rose 0.2% to $1.0574.

The fall in the greenback boosted even commodity-focused currencies such as the Australian dollar and the Norwegian krone. The Aussie rose 0.7% to US$0.6944, although it remained on course for a third straight weekly decline.

The Norwegian krone, fresh off Thursday’s 50 basis point rate hike, rose 1.0% to 9.871 to the dollar.

The Swiss franc hit its highest since early March against the euro at 1.0055, up 0.5% on the day.

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Currency bids at 11:07 a.m. (3:07 p.m. GMT)

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Reporting by Sujata Rao in London and Gertrude Chavez-Dreyfuss in New York; Additional reporting by Kevin Buckland in Tokyo; Editing by Hugh Lawson, Emelia Sithole-Matarise and Richard Chang

Our standards: The Thomson Reuters Trust Principles.

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