Market Updates – July 23

The US Dollar showed signs of resurgence as it climbed from a 15-month low against a basket of currencies since Tuesday. The boost came after core Retail Sales displayed robust gains in June, demonstrating the resilience of the US economy. Core sales registered a notable increase of 0.6% during the month.

According to data published on Tuesday, overall Retail Sales in the US rose by 0.2% on a monthly basis in June. However, this figure fell slightly short of the market’s expectation for a 0.5% increase. Nevertheless, the positive aspect was the revision of May’s growth rate, which improved from 0.3% to 0.5%.

The recent soft United States Consumer Price Index and Producer Price Index reports had initially weighed down the USD, raising speculation that the Fed was approaching the end of its tightening cycle.
The upcoming Federal Open Market Committee (FOMC) meeting on July 25-26 will be closely watched for further indications on the Fed’s policy stance.

Thursday’s data showing a surprise decline in the number of Americans filing new claims for unemployment benefits contributed to the dollar’s uptick, boosting expectations that the Federal Reserve may continue hiking interest rates if economic conditions remain strong.

In contrast, Sterling continued to face pressure after data revealed that Britain’s inflation rate slowed to 7.9%, its lowest in over a year. The softer inflation figures are likely to ease the pressure on the Bank of England to raise interest rates aggressively.

GBP/USD faced bearish pressure after the disappointing inflation readings for June. The Consumer Price Index in the UK declined to 7.9% on a yearly basis, below the market’s expectation of 8.2%. As a result, GBP/USD dropped below 1.2850, hitting its lowest level in a week.

Economists are anticipating a 25-basis-point interest rate hike by the ECB on July 27, with some even expecting another hike in September. The ECB’s forward guidance post-July will be closely monitored for further insight into the central bank’s future policy direction, potentially impacting the EUR/USD pair.

EUR/USD is currently undergoing a corrective decline, with the potential to push the pair towards 1.1000.

Market participants remain vigilant for further clues on monetary policy from both the US Federal Reserve and the European Central Bank, as these could have significant implications for currency markets in the near term.