US Dollar Steady, Yen Under Pressure to 40-Year Low
The US dollar index (DXY) moved steadily around 101.20 on Tuesday (June 30th). Investors digested mixed US economic data and hawkish comments from Federal Reserve officials, who again left open the possibility of interest rate hikes if inflation remains high.
Federal Reserve Bank of Cleveland President Beth Hammack said inflation remains too high and the Fed may need to consider additional interest rate hikes if price pressures persist. This statement maintained support for the US dollar, although its movement tended to be neutral after a correction due to end-of-quarter profit-taking.
EUR/USD moved around 1.1420 after markets digested German inflation and retail sales data. German headline inflation fell to 2.4% in June from 2.7% in May, easing immediate pressure on the European Central Bank. However, German retail sales rose 1.1% month-on-month in May after a 0.4% decline, signaling that consumption remains resilient.
GBP/USD traded flat around 1.3255 as the market remained in a precarious position following comments by Bank of England Governor Andrew Bailey. Bailey said policymakers were in no rush to change interest rates. He predicted UK inflation could still rise towards 3.2% this year, but tighter financial conditions give the central bank time to assess the impact of rising energy prices.
The greatest pressure was seen on the Japanese yen. USD/JPY broke through the 162.60 area and remained near its highest level in four decades. The yen's weakness persisted despite repeated warnings from Japanese authorities regarding possible intervention in the foreign exchange market.
The main factor pressuring the yen was the wide interest rate differential between Japan and the United States. The US dollar remained attractive because the Fed could still maintain a tight policy, while Japanese interest rates remain significantly lower despite the Bank of Japan's gradual policy normalization.
Meanwhile, AUD/USD strengthened to around 0.6920. The Australian dollar received support from the Reserve Bank of Australia's meeting minutes, which showed the central bank maintained a hawkish tone. The RBA remains open to an interest rate hike if inflation does not fall sustainably towards its target.
Aussie sentiment was also supported by Chinese economic data. China's official manufacturing PMI rose to 50.3 in June, returning to expansion. Meanwhile, the non-manufacturing PMI improved to 50.2. As China is Australia's main trading partner, improvements in Chinese manufacturing and services activity tend to support the demand outlook for Australian commodities.
Overall, the foreign exchange market remains volatile, with the primary focus on central bank policy direction. The US dollar remains strong as the Fed remains hawkish, the euro is held back by easing German inflation, the pound is flat as the Bank of England (BoE) is leaning toward a wait-and-see approach, the yen remains pressured by interest rate differentials, while the Aussie is supported by the RBA and Chinese data.
Looking ahead, investors will be closely monitoring US employment data, including the ADP Employment Change and Nonfarm Payrolls. If employment data remains strong, expectations for a Fed rate hike could rise again, supporting the US dollar. However, if the data weakens, the DXY could potentially correct, providing room for recovery for other major currencies. (arl)
Source: Newsmaker.id
