Euro Under Pressure, US Dollar Still Outperforms
The euro weakened against the US dollar on Monday (July 6th) after investors returned from the long US Independence Day holiday. EUR/USD traded around 1.1421, down 0.12%.
Market movements remained relatively limited at the start of the week. Investors were reassessing the monetary policy direction of the Federal Reserve and the European Central Bank. Falling oil prices following the interim US-Iran peace deal helped ease inflation concerns, easing pressure on central banks to aggressively raise interest rates.
From the United States, last week's weaker-than-expected Nonfarm Payrolls data reduced expectations of an imminent Fed rate hike. However, in Europe, weaker-than-expected eurozone inflation data also reduced the chances of an ECB interest rate hike this year.
ING analyst Chris Turner said the market now values the chance of an ECB interest rate hike in September at less than 50%. However, the ECB believes it is still too early to declare inflation safe, as core inflation remains at risk of rising in the coming months.
Currently, the interest rate differential still favors the US dollar. The Fed's interest rate is in the 3.50%–3.75% range, while the ECB's deposit rate is at 2.25%. This condition maintains a stronger dollar appeal compared to the euro.
The US dollar index (DXY) is moving around 101.04, rebounding from last week's low of 100.56. On the economic data front, the US ISM Services PMI fell to 54.0 in June from 54.5 in May, but this was still in line with expectations and marked the 23rd consecutive month of service sector expansion. As long as the dollar remains supported by the interest rate differential and US data does not weaken sharply, EUR/USD has the potential to remain cautious. (arl)
Source: Newsmaker.id
