Dollar Weakens Ahead of Central Bank Week, Oil Plunges
The US dollar weakened against a basket of major currencies on Monday (July 27th). The US Dollar Index fell 0.3% after a sharp drop in oil prices eased inflation concerns and eased demand for safe-haven assets.
The euro strengthened 0.3% to around US$1.1440, while the pound edged up 0.1%. The Japanese yen also strengthened 0.2%, pushing USD/JPY down to around 163.4, its lowest level in more than two weeks.
The market movement was triggered by a drop of around 5% in Brent oil prices after the United States temporarily halted attacks on Iran. Tehran also stated that it would withstand retaliatory attacks as long as Washington did not resume military action.
The easing of tensions in key shipping lanes has reduced the risk of energy supply disruptions. This has helped ease concerns that the surge in oil prices will again drive up global inflation.
Markets now expect the probability of a 25 basis point Fed rate hike this week to drop to 33.7% from 37.4%. Investors are also awaiting decisions by the Bank of England and the Bank of Japan for clues on the next policy direction.
Amid the strengthening of several riskier currencies, the rupiah weakened 0.3% after Bank Indonesia Governor Perry Warjiyo resigned. The dollar could remain under pressure if oil prices continue to fall, but its future direction will depend heavily on the Fed's statement and developments in the US-Iran conflict.
Source: Newsmaker.id
