A gauge of the dollar’s strength fell to a three-month low before a US inflation report which may reinforce bets that the Federal Reserve is nearing the end of its tightening campaign.
(Bloomberg) — A gauge of the dollar’s strength fell to a three-month low before a US inflation report which may reinforce bets that the Federal Reserve is nearing the end of its tightening campaign.
The Bloomberg Dollar Spot Index fell as much as 0.3% to the weakest since April 14 on Wednesday. Economists expect the June figures to show consumer-price growth decelerated on an annual basis, with the headline print likely to have fallen to the lowest since March 2021.
“Expectations of the Fed reaching the end of its rate-hiking cycle and further cooling of US CPI will likely reinforce bearish dollar bets,” said Ken Cheung, strategist at Mizuho Bank Ltd. in Hong Kong. “Traders may also be trimming their long dollar positions in carry trades.”
Bullish dollar bets are losing appeal among traders as signs mount that US interest rates may be approaching a peak. The Bloomberg Dollar Spot Index has tumbled more than 10% from its September peak and hedge funds turned negative on the currency for the first time since March.
The greenback’s losses this week coincided with a resurgence in other Group-of-10 currencies. The yen, which has the second-largest weighting in the Bloomberg gauge after the euro, strengthened beyond the key 140 per dollar level in Asia trading Wednesday as traders positioned for this month’s Bank of Japan policy meeting.
In addition, the pound is rising toward the 1.30 mark, which it last reached more than a year ago, as traders price in more Bank of England rate hikes.
“The dollar is firmly on the backfoot,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group Ltd. in Singapore. The Dollar Index is likely to lurch lower, and “a weaker-than-expected US CPI tonight could certainly deliver the catalyst for this move.”
–With assistance from Ruth Carson.
(Updates throughout)
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