Dollar Muted As Inflation Eases

(RTTNews) - The ECB Forum on Central Banking and the commentaries from major central banks set the tone for currency markets at the beginning of the week spanning June 26 - 30. Major central banks hinted at continuing the inflation combat and persisting with the rate hikes, causing currency markets to price in the forward guidance.

Hawkish hints from the Fed speakers lifted the Dollar Index (DXY), a measure of the Dollar's strength against a basket of 6 currencies, over the course of the week. The DXY rose from the low of 102.32 touched on Tuesday to as high as 103.54 on Friday. However, on a weekly basis, the Dollar Index was flat, closing at 102.91 versus 102.90 a week earlier. The Dollar weakened by the close of the week as the Fed's preferred PCE inflation readings provided no negative surprise.

Readings from the U.S. on Friday showed annual core PCE index falling to 4.6 percent. The same was seen steady at 4.7 percent. The corresponding month-on-month reading dropped as expected to 0.3 percent, from 0.4 percent in the previous month.

The U.S. Dollar weakened against the Euro over the course of the past week. The EUR/USD pair increased 0.19 percent to 1.0910, from 1.0889 a week earlier. Though the pair touched a high of 1.0977 on Tuesday, the rally soon fizzled and the pair even dropped to as low as 1.0834 on Friday. Data released on Friday showed inflation in the Euro Area easing more-than-expected to 5.1 percent in June. Riots in France also pressured the single currency's movements.

The pound sterling edged lower against the U.S. Dollar during the week ended June 30. The GBP/USD pair closed the week at 1.2704, versus 1.2711 a week earlier. Though the pair had touched a high of 1.2761 on Tuesday, it dropped to 1.2591 on Thursday before rebounding and closing the week a little above the $1.27 level.

Despite the Dollar's weakness, the Australian Dollar declined 0.20 percent from the levels a week earlier, amidst concerns over the economic rebound in China. The AUD/USD pair closed at 0.6666 versus 0.6677 a week earlier. The pair ranged between the high of 0.6722 touched on Tuesday and the low of 0.6597 hit on Wednesday.

The Japanese Yen weakened almost half a percent against the U.S. Dollar over the course of the past week. The USD/JPY pair finished at 144.32, rising from the level of 143.68 a week earlier. From the low point of 142.94 touched on Monday, the pair increased, even briefly crossing the 145 level on Friday. The yen weakened amidst Bank of Japan sticking to its ultra-dovish stance despite core inflation touching a multi-decade high.

On the horizon for currency markets are the release of PMI readings. The FOMC minutes is due on Wednesday, followed by the job openings data on Thursday and the non-farm payroll and unemployment data on Friday. Markets are looking forward to the updates to assess the future course of monetary policy and interest rates.

The easing in inflation has strengthened hopes that the Fed would soon taper down on its hawkish stance. Nevertheless, markets are still pricing in a 25-basis points hike by the Federal Reserve in July. The CME FedWatch tool currently shows a probability of 89.9 percent for a 25-basis points rate hike in July. It was 86.8 percent a day earlier and 74.4 percent a week earlier.

The DXY has edged up to 102.96, whereas the EUR/USD pair has slipped to 1.0909. The GBP/USD pair has fallen to 1.2689 as traders continue to weigh more rate hikes by the Bank of England. The AUD/USD to has risen to 0.6674, ahead of the review by the Reserve Bank of Australia on Tuesday. The USD/JPY pair has increased to 144.41 even as markets look out for possible intervention by the Japanese govt amidst the yen's weakness.