Forex Today: Fed rate hike bets boost the greenback

Eren Sengezer FXStreet

Here is what you need to know on Thursday, July 14:

Following Wednesday's volatile action, the US Dollar Index gathered bullish momentum early Thursday and started to push higher toward multi-decade tops above 108.50. Safe-haven flows and hawkish Fed bets fuel the dollar's rally in the second half of the week as focus shifts to weekly Initial Jobless Claims and Producer Price Index (PPI) data from inflation. The European Commission will release its Economic Growth Forecasts during the European trading hours as well.

On Wednesday, the US Bureau of Labor Statistics reported that inflation in the US, as measured by the Consumer Price Index (CPI), jumped to 9.1% on a yearly basis in June from 8.6% in May. Although the greenback initially struggled to capitalize on hot inflation data, market pricing of the Fed's rate outlook triggered provided a boost to the currency. According to the CME Group FedWatch Tool, there is now a 75% probability of the Fed hiking its policy rate by a total of 175 basis points in the next two meetings.

The Bank of Canada's unexpected decision to raise its policy rate by 100 basis points also seems to be ramping up Fed rate hike bets. Commenting on the policy outlook, "front-loading rate increases now helps avoid the need for even higher interest rates down the road," BOC Governor Tiff Macklem said. After having dipped below 1.2950 in the American session on Wednesday, USD/CAD recovered above 1.3000 early Thursday. Later in the day, Statistics Canada will release Manufacturing Sales data for May.

Meanwhile, the data from Australia showed that Unemployment Rate declined to 3.5% in June with Employment Change arriving at 88.4K in the same period. Both of these figures came in much better than analysts' estimates and AUD/USD climbed toward 0.6800 during the Asian trading hours before erasing its daily gains amid renewed dollar strength.

EUR/USD advanced beyond 1.0100 in the second half of the day on Wednesday but retraced a large portion of its daily rebound to close little changed near 1.0050. With the dollar preserving its strength early Thursday, the pair turned south and started to edge lower toward all-important parity.

GBP/USD failed to gather recovery momentum and dropped below 1.1850 early Thursday with the dollar's valuation continuing to influence the pair's action.

The widening policy divergence between the Fed and the Bank of Japan continues to boost USD/JPY. The pair was last seen trading at fresh multi-decade highs near 139.00, rising 1% on the day.

Gold snapped a two-day losing streak on Wednesday as the benchmark 10-year US Treasury bond yield lost more than 1%. The broad-based dollar strength, however, forced XAUUSD to reverse its direction and the pair was last seen testing $1,720.

Bitcoin recovered modestly on Wednesday but trades within a touching distance of $20,000 on early Thursday. Ethereum rose more than 7% after having tested $1,000 on Wednesday. ETH/USD stays on the back foot in the European morning and falls more than 1% at $1,100.

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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