Haven Demand And Fed Hike Bets Lifted U.S. Dollar Last Week

(RTTNews) - The U.S. Dollar staged a strong comeback during the week ended July 24 amidst a renewed flare-up in the Middle East and a jump in crude oil prices that threatened to goad the Federal Reserve into an aggressively hawkish monetary policy. Fresh trade tariff jitters from the U.S. also boosted the dollar.

During the week, which witnessed a rapid widening in the Middle East conflict, the U.S. dollar inter alia rallied against the euro, the British pound, the Australian dollar, the Japanese yen, the Swedish krona, the Canadian dollar and the Swiss franc. The 6-currency Dollar Index jumped more than half a percent over the course of the week. Here is a quick recap of the dollar's trajectory during the week ended July 24.

During the week, the Dollar Index (DXY), a measure of the Dollar's strength against a basket of 6 currencies climbed from the low of 100.65 recorded on Monday to the high of 101.54 recorded on Thursday.

The Dollar's surge came amidst a massive jump in crude oil prices attributed to the disruption in oil transit through the Strait of Hormuz and Red Sea. With the surge in crude prices, markets raised the expectations of a rate hike in September. According to the CME FedWatch tool that tracks the expectations of interest rate traders, the likelihood of a Fed rate hike in September increased to 82 percent by July 24. The same was at 58 percent on July 17.

Bolstered by the strong Fed rate hike bets, the Dollar Index which had closed at 100.76 on July 17, finished trading at 101.47 a week later. The index added 0.70 percent during the week ended July 24.

As Fed rate hike fears boosted the greenback, the EUR/USD pair plunged 0.62 percent in a week. By the end of the week on July 24, the EUR/USD pair dropped to 1.1368, from 1.1439 a week earlier. The pair ranged between a weekly high of 1.1450 recorded on Monday and a weekly low of 1.1364, recorded on Thursday. The European Central Bank had on Thursday left key rates unchanged in line with expectations.

The week ended July 24 also witnessed the pound dropping almost a percent against the dollar amidst renewed Fed rate hike expectations and fresh tariff measures imposed by the U.S. The sterling, which had closed at $1.3455 on July 17 declined to $1.3324 by July 24, amidst strong U.K. economic data including lower-than-expected inflation and unemployment readings. The GBP/USD pair traded between a high of 1.3482 touched on Monday and a low of 1.3298, recorded on Thursday.

Amidst the Dollar's resurgence, the Aussie edged down 0.03 percent against the U.S. Dollar during the week ended July 24. The AUD/USD slipped from 0.6983 on July 17 to 0.6981 on July 24. The pair traded between the week's low of 0.6961 recorded on Monday and the week's high of 0.7028 recorded on Tuesday.

The Japanese yen also plunged 0.90 percent against the U.S. dollar during the week ended July 24. Data released on Thursday showed Japan's annual inflation rate accelerating to 1.7 percent in June from 1.5 percent in the prior month, marking the highest reading since December. The USD/JPY pair which had closed at 162.39 on July 17, rose to 163.85 in a week's time. During the week, the pair ranged between 162.24 touched on Monday and 164.00 recorded on Thursday.

Sentiment in the currency market whipsawed on Monday as the U.S.-Iran strikes paused. The renewal in the diplomatic efforts as well as President Donald Trump's comments about giving talks with Iran some space aided the Dollar's decline against major currencies.

Amidst an easing in the geopolitical tensions in the Middle East, the decline in crude oil prices and a dimming on Fed rate hike expectations, the dollar has retreated on Monday. The six-currency Dollar Index ranged between 101.12 and 101.34 on Monday and is currently trading 0.14 percent lower at 101.33. The index had closed at 101.47 on Friday. The Federal Reserve's interest rate decision is due on Wednesday whereas the PCE-based inflation readings for June are due on Thursday.

Amidst the dollar's weakness, the EUR/USD pair has rallied 0.23 percent to 1.1394 on Monday from 1.1368 at close on Friday. Ahead of Bank of England's interest rate decision due on Thursday, the GBP/USD pair has edged down 0.06 percent to 1.3316 from 1.3324 at the end of the previous week. The AUD/USD pair which was at 0.6981 at close on Friday has rallied 0.32 percent to 0.7003. The USD/JPY pair has lost 0.15 percent, declining to 163.61 from 163.85 at close on Friday while markets wait for Bank of Japan to review its rates on July 31.