Dollar Slightly Weakens as Markets Weigh Fed Minutes
The euro and British pound strengthened slightly in Thursday trading, after hovering near their lowest levels in almost a week. Both rose around 0.1% in London, as foreign exchange markets weighed the Federal Reserve's less hawkish minutes than previously feared, but remained overshadowed by a surge in energy risks from the Middle East.
Previously, the euro and pound had been under pressure after geopolitical escalation caused investors to return to the US dollar as a safe-haven asset. Tensions escalated after US President Donald Trump declared the ceasefire with Iran was "over" and launched airstrikes to open the Strait of Hormuz.
However, the foreign exchange market reaction was not too extreme. According to Chris Turner, Global Head of Markets at ING, the biggest impact was seen in the spike in volatility and the unwinding of carry trade positions in high-yielding emerging market currencies. The US dollar itself moved relatively stable after strengthening during a volatile session.
The minutes of the Fed's June meeting provided some relief for the European currency, showing that central bank officials remained divided on the need for further interest rate hikes. However, the dollar's weakness remains limited as soaring oil prices have reignited concerns about energy-driven inflation.
From a market analyst perspective, as long as oil prices remain high, the market will continue to price in the risk of persistently declining inflation. This could force the Fed to maintain high interest rates for longer, allowing the US dollar to retain structural support compared to other major currencies.
Meanwhile, the Japanese yen remains near its weakest level in 40 years against the US dollar. This situation has kept Tokyo authorities on alert, while speculation of currency intervention is growing. Meanwhile, the commodity-sensitive Australian dollar edged up, while the South Korean won remained relatively flat amid volatility in the Seoul stock market.
Source: Newsmaker.id
