US Dollar Strengthens, Yen Nears Weakest Level Since 1986
The US dollar strengthened on Tuesday (June 23rd), driven by growing expectations that the Federal Reserve is still likely to raise interest rates this year. The dollar index hovered around 101, hitting its highest level in more than a year. This strengthening occurred as investors reassessed that US interest rates are likely to remain high for longer, especially after the Fed's meeting last week showed a more hawkish stance.
The dollar's strengthening was also fueled by persistently high US government bond yields. The market is now awaiting a number of key economic data, including the PMI, revised first-quarter economic growth, and the Personal Consumption Expenditures (PCE) price index. PCE data is of primary concern because it is the Fed's favorite inflation indicator. If inflation figures remain strong, the chances of an interest rate hike could increase and provide additional room for the dollar to continue strengthening.
In Europe, the euro was under pressure and weakened to its lowest level in recent months. This pressure arose after European Central Bank President Christine Lagarde allayed concerns about second-round inflation effects. This statement led the market to believe the ECB would not be as aggressive as the Fed in raising interest rates. Furthermore, recent data showed that eurozone private sector activity continued to shrink for the third consecutive month, adding to pressure on the euro.
The pound sterling also weakened in volatile trading after the resignation of British Prime Minister Keir Starmer added to political uncertainty in the UK. Investors are now closely monitoring the direction of the new leadership and its impact on fiscal policy. Although the market still believes the political transition can proceed smoothly, the pound remains vulnerable as the UK economy is also facing pressure from weak growth and a declining labor market.
Meanwhile, the Japanese yen is back in the spotlight, hovering near its weakest level in nearly 40 years. The USD/JPY pair hovered around 161 per US dollar and briefly approached 161.96, a breach of which could take the yen to its weakest level since 1986. This has made market participants wary of possible intervention by Japanese authorities. Although the Bank of Japan has raised interest rates, the still-wide yield gap between Japan and the United States continues to prevent the yen from recovering strongly. (arl)
Source: Newsmaker.id
