© Reuters. FILE PHOTO: US dollar banknotes are shown in this illustration taken on February 14, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
Written by Joyce Alves and Tom Westbrook
LONDON/SYDNEY (Reuters) – The dollar fell on Monday against a basket of currencies, after suffering its biggest weekly decline this year, as traders waited for economic data and policy decisions before selling for further declines.
The euro extended its rally, rising 0.15% to hit a 16-month high of $1.12440. Against the yen, the dollar fell 0.27% to 138.38 yen per dollar, after touching its lowest level against the Japanese currency in two months on Friday.
“Last week’s US inflation shock has changed the landscape for foreign exchange, but after a few days there have been no major data releases that will tell whether this impulse can keep the dollar on edge as the risk event approaches,” said Francesco Pesol, currency analyst at ING. at the Federal Open Market Committee. .
He added, “It looks like EUR/USD is a bit exhausted in the short term and could face a correction this week.”
US inflation data last week fueled investor bets that the Federal Reserve is nearing the end of the cycle of raising interest rates, and that the dollar index witnessed its largest weekly decline since November 2022, as it fell by 2.25% over the course of the week.
Data on Thursday showed that US producer prices barely rose in June and the annual increase in producer inflation was the smallest in nearly three years, a day after data showed consumer prices rose modestly last month.
Rise from the Fed and ECB is expected next week, but after market pricing this suggests the Fed will probably pause, ahead of next year’s cuts, while another hike is likely in Europe.
“The FX market is grappling with potential Fed policy normalization in 2024,” said Chris Weston, head of research at Melbourne-based broker Pepperstone.
The question then is whether the dollar sell-off has gone too far and we are at risk of a mean bounce early this week.
It fell 0.13 percent to 99,831.
Chinese data
Elsewhere, Chinese growth data fell just above lower expectations on Monday, but without triggering much of a currency market response, as traders have already priced in a quarter of a recession and wait to see if the government will increase stimulus to encourage spending.
The Australian and New Zealand dollars retreated, with the latter down 0.34% to $0.6815 – from last week’s peak at $0.6895 – and down 0.4% at $0.6345 after hitting a five-month high of $0.6412 on Friday.
“The data suggests that China’s post-COVID boom is clearly over,” said Carol Kong, strategist at the Commonwealth Bank of Australia (OTC). “But the markets already have low expectations, and the reaction from here is somewhat limited.”
Sharp gains (over-the-counter) in the yen slowed as traders weighed whether the ultra-dovish BoJ is really likely to make any shifts at next week’s policy meeting, given comments suggesting they are in no rush.
The Swedish and Norwegian crowns continued to climb after gaining more than 5% on the dollar last week. The Swedish krona rose 0.65% to 10.1860 against the dollar, and the Norwegian krone instead rose 0.4% to 10.0180.
At $1.3094, the pound was stalled just below last week’s 15-month peak.