Inflation Eases, Dollar Remains Supported by War Risks
The US dollar moved steadily in trading on Friday (July 17th), but remained on track for a weekly decline. Pressure on the greenback emerged after more benign US inflation data led the market to cut expectations for an imminent Fed interest rate hike.
The US dollar index hovered around 100.69 and is on track for a 0.3% weekly decline. Previously, the index had touched a one-month low as the likelihood of a July interest rate hike diminished. However, the escalation of the conflict between the US and Iran has again supported the dollar as a safe-haven asset.
Middle East tensions have escalated after Iran and the United States launched attacks on each other throughout the week. This situation has nearly collapsed last month's temporary ceasefire and pushed oil prices to near one-month highs, looming over the market again.
In the currency market, the euro held steady at around US$1.145 and is heading for a 0.3% weekly gain. The British pound fell slightly to US$1.346, but still has the potential to record a 0.5% weekly gain. Meanwhile, the Japanese yen strengthened slightly to 162.26 per US dollar, although it remains near its weakest level in four decades.
US economic data also indicates relatively resilient conditions. Retail sales rose slightly in June, supported by a surge in online shopping, while employment data indicated a stable job market. This suggests the Fed is expected to keep interest rates on hold at this month's meeting, although central bank officials are not yet ready to conclude that inflation is under control.
As a result, the dollar remains in a tug-of-war. Cooler inflation data dampened expectations of a rate hike, but the Middle East conflict and safe-haven demand prevented further weakness. If oil prices remain high, the risk of inflation rising again could keep the Fed's policy direction a key market focus. (arl)
Source: Newsmaker.id
