The U.S. dollar edged lower against major peers on Monday as easing crude oil prices reduced inflation concerns and dented safe-haven demand at the start of a critical week for global monetary policy. A 5% plunge in Brent crude followed Washington pausing its military campaign against Iran, pulling money-market odds on a Fed rate hike this week down to 33.7%.
The U.S. Dollar Index edged 0.07% lower in Europe trading, giving up recent gains as diplomatic signals in the Middle East prompted investors to rotate back into risk-sensitive major currencies. The pullback comes after weeks of heightened volatility across global foreign exchange desks, where surging energy costs and new U.S. trade tariffs had driven Treasury yields to multi-year peaks and fueled bets that major central banks would keep interest rates higher for longer.
Euro leads major currencies as energy costs fall
The euro rose 0.13% to trade near $1.1383, leading gains among major currencies. Falling energy input costs brought immediate relief to Eurozone growth models, helping traders look past last week’s neutral policy stance from the European Central Bank.
Sterling, however, was lower by 0.11%, backed by ongoing expectations that the Bank of England will maintain a gradual easing approach when it meets later this week. In Asia, the Japanese yen strengthened 0.2%, pushing the USD/JPY pair down toward 163.4 yen — its lowest level against the greenback in over two weeks.
That recovery follows a volatile month in which the yen hovered near four-decade lows, sparking persistent speculation that Japanese authorities, or a faster pace of rate hikes from the Bank of Japan, could intervene to stabilize the exchange rate.
Iran pause knocks 5% off Brent crude
The global currency shift was triggered by a 5% plunge in Brent crude after Washington paused its two-week military campaign against Iran over the weekend, and Tehran agreed to suspend retaliatory strikes as long as the U.S. refrained from further action.
Because of this, the de-escalation in key maritime transit corridors significantly lowered geopolitical risk premiums, easing fears of an enduring energy supply shock that had previously threatened to reignite global inflation.
Traders trim Fed hike odds before Wednesday
Lower commodity prices led money markets to dial back short-term interest rate projections for the U.S. Federal Reserve ahead of its two-day policy meeting concluding on Wednesday. CME’s FedWatch Tool showed implied probabilities for a 25-basis-point rate hike this week dropping to 33.7%, down from 37.4% late Friday.
The Fed is widely expected to hold benchmark rates steady, and Chairman Kevin Warsh’s forward guidance will be scrutinized alongside upcoming rate decisions from the Bank of England and the Bank of Japan later in the week. According to Nicholas Kennedy, FX strategist at Lloyd’s Bank: “The July FOMC decision will clearly be a major focal point for markets.”
Rupiah falls after Bank Indonesia governor resigns
Bucking the broader trend of emerging market currency gains, Indonesia’s rupiah fell 0.3% after Governor Perry Warjiyo unexpectedly resigned for personal reasons. The abrupt departure of the veteran central banker, who had led Bank Indonesia since 2018, stoked fresh investor anxieties regarding central bank independence.
Senior Deputy Governor Destry Damayanti was named interim governor to ensure operational continuity, but analysts warned the sudden leadership void could leave the rupiah vulnerable despite broader dollar weakness.
Source: Investing.com
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