The dollar has drifted near a 15-month low against major currencies on Tuesday, as investors await fresh catalysts to gauge for downside in the wake of last week's cooler-than-expected U.S. inflation. The U.S. dollar index fell as low as 99.587, languishing near Friday's trough of 99.574, its lowest since April 2022. The index had clocked its worst week of 2023 last week, after data showed U.S. inflation subsided further with consumer prices registering their smallest annual increase in more than two years. This took pressure off the Federal Reserve to continue raising interest rates. Money markets have almost fully priced a 25-basis-point rate hike from the Fed at its policy meeting later this month, but see rates coming down as early as December.
Momentum is clearly on the bearish side, but it's starting to look a bit stretched, noting recent multi-month highs in the euro and sterling. The common currency hit a fresh 17-month peak of $1.1276 against the dollar in early European trade, with markets largely pricing a 25-bps hike from the European Central Bank when it announces policy on July 27. However, the outlook for a further rate rise in September is unclear after euro zone economic activity slowed in June.
Sterling gained 0.1% to $1.3083, not far from last week's top of $1.3144, its highest since April 2022. The Japanese yen rose about 0.4% to 138.155 per dollar, as investors look to the Bank of Japan's monetary policy meeting next week for a potential phasing out of its ultra-dovish policy stance. The Australian dollar was last 0.1% lower at $0.6811 after minutes of the Reserve Bank of Australia's (RBA) July policy meeting released on Tuesday provided no major surprises on the rate outlook.
The New Zealand dollar fell 0.3% to $0.6308, with both Antipodean currencies nursing losses from the previous session driven by data from China. The country's economy grew at a frail pace in the second quarter as demand weakened at home and abroad.
