Street Calls of the Week
Investing.com - The U.S. dollar fell Wednesday as traders digested the ongoing Israel-Iran conflict, a weakening U.S. economy and the conclusion of a Federal Reserve policy meeting.
At 04:35 ET (08:35 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, fell 0.2% to 98.240, after a 0.6% jump in the previous trading session.
Dollar slips ahead of Fed decision
The dollar saw some demand on Tuesday as the fighting between Israel and Iran left traders nervous, especially as comments from U.S. President Donald Trump raised fears of U.S. involvement.
Trump demanded an "unconditional surrender" from Iran and claimed that Supreme Leader Ayatollah Ali Khamenei was an "easy target." He also seemed to suggest that U.S. had helped Israel in establishing "complete and total" air superiority over Iran.
“Yesterday’s USD jump was likely exacerbated by some positioning squeeze, and triggered by another leg higher in oil prices as Israel intensified its strikes on Tehran, and speculation about the US joining the attack flared up,” said analysts at ING, in a note.
“Should such speculation prove correct, the upside risks for oil could increase further, opening up fresh upside room for the dollar.”
However, traders are selling into those gains Wednesday ahead of the conclusion of the latest Federal Reserve policy meeting.
The Fed is widely expected to leave interest rates unchanged at the conclusion of its latest two-day gathering on Wednesday, and so traders will focus on any comments from Fed Chair Jerome Powell as well as the central bank’s "dot plot," which brings together officials’ projections for the trajectory of rates.
Investors currently see just over a 50% chance that the Fed will not unveil its next rate cut until September, but recent growth data showed a quarterly contraction while retail sales dropped more than expected in May.
Euro rebounds
In Europe, EUR/USD rose 0.3% to 1.1515, with the single currency bouncing after dropping around 1% against the dollar in the prior session.
The final reading of the May eurozone consumer inflation reading is due later in the session, but is not expected to change much from the 1.9% annual rise seen earlier this month.
“Although the overbought and overvalued condition of EUR/USD suggests further corrections, the preference to buy on dips due to structural bearish views on the USD may only be put on pause until oil prices absorb the geopolitical shock,” said ING.
GBP/USD climbed 0.2% to 1.3463, with sterling climbing against the U.S. dollar despite data showing British inflation slowed in May.
U.K. consumer prices rose in annual terms by 3.4% last month, a drop from 3.5% seen in April, while services price inflation - a crucial metric for the Bank of England - cooled to 4.7% from 5.4% in April.
The BoE is expected to keep rates on hold on Thursday having lowered rates by a quarter point to 4.25% in early May.
“The Bank of England’s recent hawkish turn has not been endorsed by data so far, as jobs, growth and now inflation figures have come in on the soft side. But it raises the risk of a slightly more dovish tone tomorrow; although not of a cut, which remains rather unlikely,” sad ING.
USD/SEK rose 0.2% to 9.5677 after the Riksbank cut Sweden’s benchmark interest rate by 25 basis points to 2.0% earlier Wednesday, its lowest level in over 2 years.
Little in the way of trade news
In Asia, USD/JPY traded 0.1% lower to 144.58, after Japan’s Prime Minister Shigeru Ishiba said the country had not reached a trade deal with the United States during the Group of Seven summit.
Ishiba said that disagreements still remained between the two, and that U.S. tariffs had battered Japan’s automobile industry.
Ishiba’s comments came shortly after data showed Japan ran a smaller-than-expected trade deficit in May as the country’s exports shrank for the first time in eight months, albeit at a slower than expected pace.
USD/CNY traded largely flat at 7.1852, ahead of a meeting of the People’s Bank of China later in the week, with the central bank expected to leave the benchmark loan prime rate unchanged after a cut earlier this year.