Dollar Hits 40-Year Record Against Yen
The US dollar strengthened against a basket of major currencies on Thursday (July 23rd), including hitting a new 40-year high against the Japanese yen. The greenback also strengthened against the euro after surging oil prices and the European Central Bank's decision to maintain interest rates boosted demand for the dollar.
This strengthening occurred as Brent oil prices continued their rise for the fifth consecutive session. Brent briefly broke through US$100 per barrel for the first time since late May after the Houthi group in Yemen claimed to have attacked two Saudi Arabian oil tankers.
The attacks raised concerns about global oil supply, particularly as shipping routes around the Strait of Hormuz also remain disrupted. This situation has rekindled concerns that rising energy prices will increase global inflationary pressures.
The US Dollar Index, which measures the greenback against six major currencies, rose about 0.3% to 101.47. This strengthening brought the dollar index to its biggest daily gain in a month.
The dollar has received support in recent days after the escalating conflict between the United States and Iran pushed oil prices higher. Investors are beginning to consider the possibility of the Federal Reserve raising interest rates again to control the inflationary impact of rising energy prices.
The United States economy is also considered to be more resilient than Europe and Japan in dealing with high energy costs. This situation makes the dollar increasingly attractive to investors amidst increasing market uncertainty.
Meanwhile, the ECB maintained its three key interest rates: the deposit facility rate at 2.25%, the main refinancing rate at 2.40%, and the marginal lending facility at 2.65%.
This decision was expected by the market. However, the ECB warned that the full impact of rising energy prices on inflation is not yet fully clear.
The central bank assessed that the energy price outlook remains highly volatile and is well above the levels seen before the Middle East conflict re-escalated. The ECB also emphasized that further monetary policy will be determined based on economic data and decided at each meeting.
The euro continued to weaken after the decision, falling around 0.35% to US$1.137. The market is also awaiting a statement from ECB President Christine Lagarde for clues on the next interest rate direction.
Remaining high US Treasury yields are also supporting the dollar's strength. Expectations that US interest rates will remain high make dollar-denominated assets more attractive than other currencies.
Geopolitical risks remain the main drivers of the foreign exchange and commodity markets. The latest US military strikes on Iranian targets and Houthi threats against commercial vessels have kept oil prices high and increased the risk of energy-driven inflation.
In the UK, the pound sterling moved relatively stable after consumer inflation slowed to 2.6% in June. This data reinforces expectations that the Bank of England will maintain its gradualist policy approach.
Market Impact
A strengthening dollar has the potential to put pressure on the euro, yen, and other riskier currencies. Gold prices could also face pressure if Treasury yields and expectations of a Fed rate hike continue to rise.
Meanwhile, oil prices are likely to remain high as long as Middle East conflicts and shipping disruptions persist. This could maintain inflation concerns and keep global stock markets volatile.
Source: Newsmaker.id
