US Dollar Weakens, Inflation Risks Ease
The US dollar index weakened to 101.2 after previously touching a 14-month high of 101.8 on June 24. This weakening occurred as inflation risks began to subside, leading the market to reduce expectations for a significant Federal Reserve interest rate hike.
Market sentiment improved after the United States and Iran were scheduled to resume peace talks. The two countries previously agreed to halt recent attacks, opening the opportunity for stabilization in the Persian Gulf region.
The easing of tensions also led to a rebound in tanker flows from the Persian Gulf. This helped push crude oil prices back closer to pre-war levels. If energy prices continue to fall, global inflationary pressures could also ease.
Previously, rising energy costs were one of the reasons some FOMC officials predicted additional interest rate hikes this year. However, signs of declining core inflation have led the market to believe that the Fed's room for rate hikes may be more limited.
Despite its weakness, the US dollar still draws support from a strong labor market. Investors are now awaiting this week's US jobs report to determine whether the US economy remains robust. On the other hand, tight monetary policy remains a concern as other major central banks, including the ECB and the Bank of Japan, continue to strive to contain inflation through interest rate hikes. (gn)
Source: Newsmaker.id
