Dollar struggles as bets on big rate hike cool By Reuters

© Reuters. FILE PHOTO: US dollar banknotes are shown in this image, taken Feb. 14, 2022. REUTERS/Dado Ruvic

By Saikat Chatterjee

LONDON (Reuters) – The US dollar struggled against its major rivals on Monday as traders reconsidered prospects of aggressive rate hikes, while the euro led the way as the European Central Bank’s annual summit in Portugal starts.

Aggressive betting on rate hikes has boosted the dollar in recent days with an index soaring to a nearly two-decade high of 105.79 earlier this month. But with a number of high-frequency data indicators showing growth momentum starting to cool, investors are turning bearish on the outlook for the economy.

“The sharp rise in inflation expectations has pushed consumer confidence to an all-time low, fueling fears of a sharper slowdown in the US economy going forward,” Mizuho strategists said in a note.

Against its rivals, the dollar rose 0.2% lower at 103.86. It reached a late 2002 high of 105.79 earlier this month.

Higher end prices of benchmark rates have been important support for the dollar, but that source of strength has faded in recent days.

Futures pricing shows that traders are now anticipating a stabilization in the US Federal Reserve’s benchmark interest rate at around 3.5% from March next year, a drop in rate pricing to around 4% by 2023.

The euro led the gains against the dollar as the European Central Bank’s annual forum kicked off in Sintra with ECB President Christine Lagarde and Federal Reserve Chair Jerome Powell both attending the meeting. Markets will be on the lookout for signs of future policy moves.

The single currency rose 0.2% to $1,0580.

Notwithstanding bullish sentiment in global markets, commodity currencies came under pressure on Monday as data showed that industrial profits in China shrank again in May, albeit at a slower pace, after falling sharply in April.

Elsewhere, the Russian ruble weakened in the interbank market as Russia headed for its first sovereign default since the Bolshevik revolution a century ago.

Cryptocurrencies solidified gains, with the world’s largest cryptocurrency up 1.4%, trading at $21,170.88 after falling to $17,588.88 earlier this month.

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