Safe-haven Dollar Drops Amidst Trade Deal With Japan

(RTTNews) - The Dollar recorded a massive decline during the week ended July 25 amidst the announcement of the trade deal between the U.S. and Japan. The week was dominated by caution over trade tariffs as well as interest rates in the U.S. Anxiety was also writ large ahead of the crucial August 2 deadline for higher trade tariffs.

The U.S. Dollar inter alia slipped against the euro, the British pound, the Australian dollar, as well as the Japanese yen during the past week. The greenback also declined against the Swiss franc, the Swedish krona and the Canadian Dollar. The Dollar Index which measures the Dollar's strength against a basket of 6 currencies also dropped heavily.

From the level of 98.48 on July 18, the Dollar Index plunged 0.85 percent in a week's time. The Index which had touched a weekly high of 98.51 on Monday dropped to the weekly low of 97.11 by Thursday. The Index eventually recovered and closed the week at 97.64.

The European Central Bank had on Thursday held rates steady as widely expected. The ECB preferred to adopt a wait-and-watch stance, as they evaluated the impact of lingering trade uncertainty and the potential fallout from the proposed U.S. tariffs on economic growth as well as inflation. Amidst the European Central Bank holding rates steady, the EUR/USD pair rallied 1 percent during the week ended July 25. From the weekly low of 1.1614 touched on Monday, the pair jumped to 1.1790 on Thursday. The pair eventually closed at 1.1742, versus 1.1626 a week earlier.

Amidst the dollar's weakness, the British pound also rallied against the greenback. The GBP/USD pair which had closed at 1.3409 on July 18 gained 0.22 percent during the week ended July 25 to close at 1.3439. The weekly trading range was wider, between a low of 1.3397 recorded on Monday and a high of 1.3590 on Thursday.

The Australian Dollar jumped 0.88 percent against the U.S. Dollar during the week ended July 25. Minutes of the Reserve Bank of Australia's meeting in July released on Monday showed the central bank inclined towards cutting interest rates further. However, caution about the inflation and employment situation swayed policy decision. From the level of 0.6510 recorded on July 18, the pair rose to close the week ended July 25 at 0.6567. During the week, the pair oscillated between a low of 0.6498 recorded Monday and the high of 0.6626 recorded on Thursday.

The U.S. Dollar weakened heavily against the Japanese Yen during the week ended July 25. The USD/JPY pair closed the week at 147.67 versus 148.83 a week earlier, registering a decline of 0.78 percent. The pair ranged between the high of 148.68 recorded on Monday and the low of 145.84 recorded on Thursday. The yen was boosted by the trade deal between the U.S. and Japan. The currency movements also came amidst expectations of a rate hike by the Bank of Japan that offset the yen's weakness triggered by Japan's ruling coalition losing its majority in the upper house.

Currency market movements over the ensuing week are expected to be significantly influenced by key economic data releases as well as interest rate decisions. Major events lined up for the coming week from the U.S. are the release of JOLTs job openings data for June due on Tuesday, advance estimates of second quarter GDP and the Federal Reserve's interest rate decision due on Wednesday, PCE-based inflation readings for June due on Thursday and payrolls data as well as ISM Manufacturing PMI for July due on Friday. The 6-currency Dollar Index has rallied to 98.25 from 97.64 at close on Friday.

Amidst the Dollar's rebound, the EUR/USD pair has slipped to 1.1643 from 1.1742 on Friday whereas the GBP/USD pair has edged down to 1.3421 from 1.3439 on Friday. The AUD/USD pair has plunged to 0.6530 versus 0.6567 at close on Friday. Ahead of the Bank of Japan's interest rate decision, the USD/JPY pair has surged to 148.17. It was at 147.67 on Friday.