Dollar Corrects Ahead of CPI Data and Warsh Testimony
The US dollar weakened slightly but remained near a 13-month high in trading on Tuesday (July 14), ahead of the release of US inflation data and Fed Chairman Kevin Warsh's first testimony before Congress. The market is now more sensitive to the CPI data as Middle East tensions have again pushed oil prices sharply higher.
The conflict between the United States and Iran in the Gulf region has nearly halted shipping through the Strait of Hormuz. This has pushed oil prices towards US$90 per barrel and prompted investors to consider the possibility of a global interest rate hike this year.
The market's primary concern is the impact of the oil surge on inflation. If energy prices continue to rise, price pressures could intensify, making it difficult for the Fed to cut interest rates. In fact, the market now sees a roughly 20% chance that the Fed will raise interest rates in July.
These expectations have pushed US bond yields above 4.6%, their highest level since May, and provided additional support for the dollar. Comments from Fed Governor Christopher Waller also added to the pressure, after he said interest rates may need to be raised soon if inflation remains significantly above the 2% target.
In the currency market, the euro edged up 0.2% to US$1.1399, while the pound sterling also strengthened 0.2% to US$1.337. However, currency volatility increased as traders began hedging their positions against potential large movements following the release of US inflation data.
Meanwhile, the Japanese yen remained near its weakest level in 40 years despite briefly strengthening to 162.27 per US dollar. Market participants remained wary of potential intervention from Japanese authorities, especially after comments that the government could review the asset allocation of state pension funds if market conditions changed sharply. (arl)
Source: Newsmaker.id
