Dollar steadies after biggest weekly loss this year

NEW YORK: The dollar edged higher against a basket of currencies on Monday after last week suffering its largest weekly decline this year as Treasury yields tumbled.

This week is likely to see the dollar consolidate as investors wait on the Federal Reserve’s meeting next week, when the US central bank is expected to hike rates by an additional 25 basis points.

The pace of last week’s dollar decline “seemed unusually large,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York, noting that the market should steady and see a firmer dollar this week.

This week’s main US economic focus will be the retail sales report for June on Tuesday, though the data is unlikely to sway the path of monetary policy.

Fed funds futures traders are pricing in an additional 33 basis points of tightening this year, with the benchmark rate expected to peak at 5.40% in November. That implies that the market sees a low chance of further interest rate increases after the Fed’s July 25-26 meeting.

“Last week’s US disinflation shock altered the FX landscape, but a few days without key data releases will tell us whether that impulse can keep the dollar on the back foot as the FOMC risk event draws nearer,” Francesco Pesole, FX strategist at ING, said.

The dollar index was last up 0.03% at 99.979, after falling to 99.574 on Friday, the lowest since April 2022.

The euro was little changed on the day at $1.1225, after earlier reaching $1.12445, the highest since February 2022.

In Germany, the Bundesbank said on Monday the euro zone’s largest economy may shrink this year by more than the 0.3% decline expected only a few weeks ago, despite a small bounce in the second quarter.

Industry-heavy Germany is bearing the brunt of a drop in global demand for goods - the result of higher borrowing costs dampening investment and people spending more on leisure, travel and other services in the aftermath of the pandemic.

The European Central Bank is also expected to raise interest rates by 25 basis points next week.

The dollar gained 0.23% against the Japanese yen to 139.06, after dropping to 137.245 on Friday, the lowest since May 17.

The British pound fell 0.09% to $1.3077, after hitting $1.31440 on Thursday, the highest since April 2022.