The US dollar retreated to a multi-week low on Monday, weighed down by expectations of a less restrictive monetary policy and softer Treasury yields across the board.
Last week’s economic data releases weakened interest rate hike bets, with consumer price inflation matching forecasts and producer prices below expectations.
Additionally, retail sales fell by 0.6%, against a forecast of a 0.1% increase, and consumer sentiment deteriorated more than anticipated, weakening the case for immediate monetary policy tightening.
Markets now price in a 70% probability for interest rates to remain unchanged at the Federal Reserve’s next meeting, up from 48% a week earlier.
However, the downside could be limited. Yields remain within an elevated range, while uncertainty in the Middle East and inflation concerns persist.
Any escalation in tensions could revive demand for safe havens and support the currency, while driving oil prices higher and pushing up yields. Looking ahead, attention turns to the FOMC minutes, labour market data and geopolitical developments. Elsewhere, tightening expectations from the Bank of Japan and the European Central Bank will also be monitored, as a firmer stance from either could lift the yen and the euro and weigh on the dollar.
Leave a Comment