Quarter-End Flows Pressure US Dollar
The US dollar weakened in trading on Friday (June 26), after previously strengthening due to rising geopolitical concerns in the Strait of Hormuz. Foreign exchange market movements tend to be influenced by month-end and quarter-end transaction flows, amid a lack of new catalysts.
The Bloomberg Dollar Spot Index fell 0.1%, after previously rising 0.2% following reports of a projectile attack on a ship in the Strait of Hormuz. The incident temporarily dampened global risk sentiment and boosted demand for the dollar as a safe-haven asset. However, this boost was short-lived as investors began adjusting their positions ahead of the month's close.
Despite weakening on Friday, the dollar index is still up around 0.5% since the start of the week and is on track for its second weekly gain. The dollar's primary support remains expectations that the Federal Reserve will still raise interest rates this year, although the latest inflation data has somewhat tempered bets for a more aggressive hike.
The yield on the 10-year US Treasury bond fell around 2 basis points to 4.37%. This decline in yields has also limited the dollar's strength. Meanwhile, Brent prices weakened more than 3% to around US$72.68 per barrel and headed for a third weekly decline, as shipping traffic in the Strait of Hormuz remained two-way, despite security risks not yet fully abating.
The euro managed to regain ground above the 1.14 level against the US dollar, supported by end-of-month flows. EUR/USD rose 0.3% to around 1.1408, trimming its weekly decline to around 0.6%. However, spot trading volume remained below average as market participants tended to hold positions ahead of the weekend.
In Japan, USD/JPY fell 0.2% to around 161.54. The yen remained near its weakest level since 1986, keeping speculation of intervention by Japanese authorities alive. Tokyo's core inflation data rose 1.6% year-on-year in June, in line with market expectations. This figure is of concern as it could influence the Bank of Japan's outlook on interest rate policy.
The Japanese government also emphasized that it will maintain fiscal sustainability in its budget preparation and investment decisions. This statement came after Prime Minister Sanae Takaichi announced a US$2.3 trillion long-term investment roadmap along with major budget reforms.
Meanwhile, the pound sterling also strengthened against the US dollar. GBP/USD rose 0.2% to around 1.3213 after UK household inflation expectations also fell in line with weakening oil prices. This signaled that the Bank of England may be able to avoid additional interest rate hikes if price pressures continue to ease.
Overall, the dollar's weakness on Friday was largely influenced by month-end flows and a technical correction following its previous gains. However, as long as expectations for a Fed rate hike remain and US inflation has not returned to target, the US dollar still has the potential to find support in the short term. (arl)
Source: Newsmaker.id
