Latest news with #dollar
Yahoo
8 hours ago
- Business
- Yahoo
The dollar sees a rebound after US strikes Iran, but can it continue?
The dollar rose on Monday as uncertainty over the Israel Iran conflict persisted following US strikes on Iranian nuclear facilities over the weekend. By around 2.45 CEST, the Dollar Index had risen 0.61% in daily trading to 99.31. Over the month, it showed a 0.19% increase, although its year-to-date value was still down almost 9%, failing to win back losses linked to erratic policies from the Trump administration. US President Donald Trump said that the weekend strikes had caused 'monumental damage', although some Iranian officials downplayed the impact. The full extent of the damage could not immediately be determined by the UN's nuclear watchdog. Israel — meanwhile — continued with its strikes on Iran on Monday, while Tehran vowed that it would 'never surrender to bullying and oppression'. Several nations warned Iran against a retaliatory closure of the Strait of Hormuz, a shipping lane responsible for around 20% of global oil and gas flows. 'In this morning's trading session, the dollar staged an expected rebound. The demonstration of US military strength, as well as the fear of higher oil prices, weakened the euro,' said ING economists in a note. Higher oil prices would likely drive up inflation and discourage the US Federal Reserve from cutting rates in the near future. This would spell bad news for US consumers but would simultaneously increase the dollar's attractiveness to investors. 'Looking ahead, one of the key questions is whether US involvement in the conflict could restore the dollar's safe-haven appeal. Here, a crucial factor will be the duration of any potential Strait of Hormuz blockade. The longer such a blockade lasts, the higher the likelihood that the value of safe-haven alternatives like the euro and yen is eroded, and the dollar can enjoy a decent recovery,' said ING economists. Related Energy in Europe is also at stake as Israel-Iran conflict escalates Is Trump destroying the dollar - and what does it mean for the euro? The greenback's value has dropped significantly this year as policies from the Trump administration have spooked investors, damaging the currency's status as a safe-haven asset. Signals worrying investors are not solely linked to trade policy, but also include a high US deficit, the cost-slashing bureau DOGE, sudden cuts to foreign aid, withdrawals from international treaties, and the prospect of financial deregulation. Greg Hirt, chief investment officer with Allianz Global Investors, told Euronews that 'structural issues around a twin deficit and the Trump administration's volatile handling of tariffs should continue to weigh on an overvalued US dollar'. Even so, he noted that the 'short term potential for higher oil prices will likely affect the Chinese and European economies to a greater extent, as they are more dependent on oil imports than the US'. Ryan Sweet, chief US economist at Oxford Economics, reiterated this point, noting that 'the US economy is essentially energy independent but others are not, including Japan as it imports most of its oil from the Middle East'. Sweet told Euronews that dollar gains are positive but still muted as 'currency markets are in a wait and see mode'. There is also significant uncertainty around President Trump's tariff deadline, with a 90-day pause on so-called 'reciprocal' duties set to expire on 9 July. Sign in to access your portfolio
Yahoo
20 hours ago
- Business
- Yahoo
The EUR/USD Paradox: A Strong Euro in a Weak Economy
The surge is fueled by a mix of diverging central bank policies—with the European Central Bank (ECB) holding steady while the Federal Reserve (Fed) leaning dovish—and global tensions that are pushing gold prices higher and rattling markets. Traders currently price in only a 41% chance of a single 25-basis point (bps) rate cut by the ECB before the end of the year, while the Fed is widely expected to lower its benchmark rate by half a percentage point over the same period. Interestingly, the euro's ostensible strength is evident not only in EUR/USD. Other pairs—notably, EUR/GBP and EUR/JPY—have been gaining ground too, even as Europe's economic backdrop is far from being rosy: sluggish GDP growth, heavy debt loads, and a rising tide of geopolitical risks. Normally, these are the kind of conditions that send investors scrambling for the U.S. dollar. But not this time. The euro's recent rally has less to do with confidence in Europe—and more to do with growing doubts about the dollar. Kar Yong Ang, a financial market analyst, explains the reasons for the rally and shares his insights on what to expect next. 1. Dollar Weakness Has Overpowered All From its latest peak in January 2025, the U.S. Dollar Index (DXY) has dropped by more than 11%—one of its worst starts in decades, on par with the slumps seen back in 1986 and 1989[1]. As inflation cools, investors are betting on rate cuts, which pulls down yields on U.S. Treasuries. Add to that a rising divergence in monetary policy expectations and the recent trade tariffs drama , and the dollar's usual safe-haven appeal is fading—even with plenty of geopolitical noise still in the background. 2. Shifting Fed–ECB Divergence While the ECB has signalled one or two cuts by year-end, markets now price in a less aggressive path[2]. By contrast, the Fed seems to be taking a dovish stance, with interest rates swaps market data factoring in a rate cut in September and a second by December. That widening differential in forward rates has supported EUR/USD, even though eurozone growth has been far more fragile. 3. Trump Tariff Risk and Asymmetric Sentiment The U.S. trade policy uncertainty, particularly the threat of renewed tariffs, has weighed more heavily on the USD sentiment than it has on eurozone exposure. Markets view these tariffs as potentially inflationary and detrimental to U.S. economic growth. Speculative positioning data confirms record bearish sentiment on the dollar—fund managers are notably underweight USD for the first time in two decades[3]. 4. Eurozone's Political and Fiscal Pivot In a major shift, Germany has finally loosened its purse strings, choosing to borrow and invest—a dramatic break from its long-held stance on fiscal restraint[4]. That move has sparked hopes of a broader, investment-driven recovery across the eurozone. At the same time, ECB President Christine Lagarde has been careful not to fuel speculation about deep rate cuts, helping to steady market expectations and project a sense of monetary calm—at least for now. 5. Unwinding of Safe-Haven Flows Traditionally, geopolitical stress lifts the USD via flight to safety. But this cycle is different. Investors are increasingly favouring gold, the Swiss franc, and the yen as defensive assets. The euro has benefited indirectly, especially as U.S. equity outflows reduce demand for dollar-denominated assets. In April, when Trump delayed tariff plans, safe-haven inflows into USD unwound further, fuelling euro gains[5]. 6. Cooling U.S. Inflation May and June CPI reports confirmed disinflation is taking hold in the U.S., reducing the urgency for Fed tightening[6][7]. This added another leg to the euro's rally as rate differentials widened. Although many factors end up in the EUR's favour, a lot of them are likely to remain temporary. At the same time, the following structural issues may potentially exert a downward pressure in the long-term. Fundamentals Remain Misaligned. The eurozone economy is not booming. The IMF projects just 0.9% growth for the euro area in 2025, with Germany, France, and Italy struggling to regain momentum[8]. The ECB's Financial Stability Review flags worsening credit conditions, weak private investment, and deteriorating balance sheets[9]. None of these support sustained euro appreciation. Stronger Euro Risks Undermining Exports. Eurozone exporters—particularly in machinery, chemicals, and autos—already face compressed margins due to rising input costs and global protectionism. A stronger euro worsens this, making goods less competitive in global markets. The eurozone's current account surplus, long a structural support for EUR, is shrinking—raising questions about long-term sustainability. According to the latest ECB report, the eurozone's seasonally adjusted current account surplus shrank to just 19.8 billion euros in April from 50.9 billion euros in March[10]. Political Risk Premium May Reassert. Political tensions are bubbling under the surface—fragile coalitions in Germany, budget battles in France, and a fresh wave of anti-EU sentiment in Italy and the Netherlands. If any of these flare up, or if the ECB turns more dovish to cushion a softening labour market, the euro's recent gains could unravel just as quickly as they came. Alongside these factors, the pair is technically overextended. 'EURUSD has already retraced precisely 78.6% of its major bearish trend which began in January 2021 and ended in September', explains Kar Yong Ang. 'Now a very strong resistance area lies ahead defined by the 1.18000-1.20000 levels. It will not be an easy task to pass through it. Furthermore, we see bearish RSI [Relative Strength Index] divergence on a daily chart, so I will not be surprised to see a solid pullback towards the 1.13000 level.' The euro's rise says more about the dollar's vulnerability than Europe's progress. Widening rate differentials and U.S. trade policy uncertainty have pushed EUR/USD higher. But scratch the surface, and you'll find shaky fundamentals and warning signs on the charts. Unless the dollar keeps weakening, don't be surprised if the tide turns. For now, the euro's strength might just be a reflection in the dollar's rear-view mirror—not a signal of real economic momentum in the eurozone. ↑ ↑ ↑ ↑ ↑ ↑ ↑ ↑ ↑ ↑ This article was originally posted on FX Empire The EUR/USD Paradox: A Strong Euro in a Weak Economy Credo's Revenue Soars, Attracts Big Money Inflows REV Group Shares Up 77% In a Year Thanks to Big Money Big Money Lifts Disney 1,427% Since First Outlier Buy Outlier Inflows Boosting Carpenter Technology Bulgaria Poised to Join the Euro: An Interview with Scope Ratings' Dennis Shen
Zawya
a day ago
- Business
- Zawya
Dollar weakest since 2021 against euro as Fed rate cuts bets rise
The dollar hit a fresh three-and-a-half-year low against the euro on Friday as traders bet that the Federal Reserve will cut rates more times and possibly sooner than previously expected as some U.S. data points to a weakening economy. A report on Friday showed that U.S. consumer spending unexpectedly fell in May as the boost from the pre-emptive buying of goods like motor vehicles ahead of tariffs faded, while monthly inflation increases remained moderate. A weekly jobs report on Thursday showed that continuing unemployment claims rose to the highest level since November 2021 while gross domestic product figures for the first quarter reflected a sharp downgrade to consumer spending. 'Some of the data that we've had has not been particularly good over the last few days,' said Lou Brien, strategist at DRW Trading in Chicago. Fed Chair Jerome Powell's testimony to U.S. Congress this week was interpreted as dovish after he noted that rate cuts are likely if inflation doesn't increase this summer as he expects. Reports that U.S. President Donald Trump could also appoint a replacement for Powell in the coming months have added to dollar weakness. The new Fed chair is expected to be more dovish and an early appointment could undermine Powell's influence by acting as a shadow chair before Powell's term ends in May. Trump has not decided on Powell's replacement and a decision isn't imminent, a person familiar with the White House's deliberations said on Thursday. The dollar index fell 0.15% to 97.23 while the euro was last up 0.21% to $1.1723. The single currency reached $1.1754, the highest since September 2021. The euro got a small uplift after data showed French consumer prices rose more than expected in June, while Spain's 12-month EU-harmonised inflation also inched higher. Fed rate cuts would reduce the interest rate advantage of the dollar relative to peers. Traders are pricing in 65 basis points of cuts by year end, up from 46 basis points a week ago. The long-term outlook for the dollar is also seen as challenging as foreign investors reevaluate the 'American exceptionalism' that has drawn investment to the country. Brien said that the impact of the Biden administration's policies was also still weighing on the currency. Former President Joe Biden cut off Russia's access to the U.S. dollar, froze its assets and imposed sanctions following the country's invasion of Ukraine in 2022, which analysts say led other countries to accelerate shifts away from U.S. dollar reliance. 'The Biden administration weaponized the dollar as it really had not been weaponized before,' Brien said. 'That aspect of it is still in the back of people's heads.' Against the Japanese yen, the dollar strengthened 0.19% to 144.65. Core consumer inflation in Japan's capital slowed sharply in June due to temporary cuts to utility bills but stayed well above the central bank's 2% target, keeping alive market expectations for further interest rate hikes. In cryptocurrencies, bitcoin fell 1.13% to $106,594.
CNA
a day ago
- Business
- CNA
Dollar weakest since 2021 against euro as Fed rate cuts bets rise
NEW YORK :The dollar hit a fresh three-and-a-half-year low against the euro on Friday as traders bet that the Federal Reserve will cut rates more times and possibly sooner than previously expected as some U.S. data points to a weakening economy. A report on Friday showed that U.S. consumer spending unexpectedly fell in May as the boost from the pre-emptive buying of goods like motor vehicles ahead of tariffs faded, while monthly inflation increases remained moderate. A weekly jobs report on Thursday showed that continuing unemployment claims rose to the highest level since November 2021 while gross domestic product figures for the first quarter reflected a sharp downgrade to consumer spending. 'Some of the data that we've had has not been particularly good over the last few days,' said Lou Brien, strategist at DRW Trading in Chicago. Fed Chair Jerome Powell's testimony to U.S. Congress this week was interpreted as dovish after he noted that rate cuts are likely if inflation doesn't increase this summer as he expects. Reports that U.S. President Donald Trump could also appoint a replacement for Powell in the coming months have added to dollar weakness. The new Fed chair is expected to be more dovish and an early appointment could undermine Powell's influence by acting as a shadow chair before Powell's term ends in May. Trump has not decided on Powell's replacement and a decision isn't imminent, a person familiar with the White House's deliberations said on Thursday. The dollar index fell 0.15 per cent to 97.23 while the euro was last up 0.21 per cent to $1.1723. The single currency reached $1.1754, the highest since September 2021. The euro got a small uplift after data showed French consumer prices rose more than expected in June, while Spain's 12-month EU-harmonised inflation also inched higher. Fed rate cuts would reduce the interest rate advantage of the dollar relative to peers. Traders are pricing in 65 basis points of cuts by year end, up from 46 basis points a week ago. The long-term outlook for the dollar is also seen as challenging as foreign investors reevaluate the 'American exceptionalism' that has drawn investment to the country. Brien said that the impact of the Biden administration's policies was also still weighing on the currency. Former President Joe Biden cut off Russia's access to the U.S. dollar, froze its assets and imposed sanctions following the country's invasion of Ukraine in 2022, which analysts say led other countries to accelerate shifts away from U.S. dollar reliance. 'The Biden administration weaponized the dollar as it really had not been weaponized before,' Brien said. 'That aspect of it is still in the back of people's heads.' Against the Japanese yen, the dollar strengthened 0.19 per cent to 144.65. Core consumer inflation in Japan's capital slowed sharply in June due to temporary cuts to utility bills but stayed well above the central bank's 2 per cent target, keeping alive market expectations for further interest rate hikes. In cryptocurrencies, bitcoin fell 1.13 per cent to $106,594.
Zawya
a day ago
- Business
- Zawya
Sterling keeps climbing on struggling dollar
LONDON - The pound was set for its biggest weekly gain against the dollar in nearly four months on Friday and held close to its near four-year high hit the previous day, though that was more due to dollar weakness than sterling strength. The pound was last up 0.14% on the dollar at $1.13745, just off Thursday's top of $1.37701, the highest since late 2021. It was broadly steady on the euro, at 85.24 pence, underlining the fact that the move in the pound against the dollar - referred to as cable by financial markets - has much more to do with the dollar. "The gains in cable reflect mostly this year's weakness in the dollar and the strength of the euro, which has dragged the pound higher due to the limited parameters of the EUR/GBP trading range," Rabobank analysts said in a note. The pound has gained 2.2% against the dollar this week, its most since early March, as the greenback's short-lived gains during the Israel-Iran conflict fade. The main domestic support for the pound this year has come from the Bank of England being slower to cut interest rates than peers, particularly the European Central Bank, as inflation remains sticky. "Core inflation in the UK has basically stopped moving for the past year - hard to say why. BoE officials are quite concerned. That makes it difficult to cut rates and also the economic outlook is not improving," Michael Pfister, FX analyst at Commerzbank, said. Analysts also said they were watching this week's political drama given what Rabobank described as "the overhang of a very large debt/GDP ratio and a UK current account deficit." Prime Minister Keir Starmer this week sharply scaled back planned welfare cuts after more than 100 of his Labour Party lawmakers publicly opposed the reforms, which sought to shave 5 billion pounds ($6.9 billion) per year off a rapidly rising welfare bill. (Reporting by Alun John and Lucy Raitano; Editing by Andrew Heavens)
