The euro gained about 1% against the dollar in July as the dollar posted its worst month since April, squeezed by a murky U.S. inflation outlook and a Fed decision that drew three dissents in favor of a rate hike. Eurozone inflation accelerated to 2.9% in July, strengthening the case for an ECB rate increase in September.
The euro settled at $1.1537 on Friday, up 0.1% on the day and about 1% higher for July, as the dollar closed out its worst month since April.
Eurozone inflation accelerates, boosting ECB rate-hike bets
Eurozone headline inflation picked up to 2.9% in July from 2.8% in June, driven primarily by a resurgence in oil prices. Core inflation, excluding food and energy, accelerated to 2.5%, while services inflation rose to 3.3%. Together with a stronger-than-anticipated second-quarter eurozone GDP print, the data strengthened the case for the European Central Bank to deliver a rate hike at its September meeting.
Financial markets are pricing more than two rate increases by early next year, though economists caution that easing labor-market pressure and slowing food inflation may limit the scope for aggressive tightening.
Dollar drags as Fed's inflation fight faces doubts
The U.S. dollar index fell 1.3% in July, with the bulk of the decline coming this week as traders grew concerned over the Federal Reserve's ability to fight inflation. That concern showed up in the bond market: the 10-year Treasury yield rose 5.1 basis points to 4.714% on Friday, and the 30-year gained 5.5 basis points to 5.261%, both up sharply for the month.
Policymakers held their benchmark rate steady on Wednesday, but three regional Fed presidents dissented in favor of a 25-basis-point increase: Cleveland's Beth Hammack, Minneapolis's Neel Kashkari and Dallas's Lorie Logan. Kashkari pointed to supply shocks and rising data-center-driven demand as inflation risks, while Hammack and Logan argued that current policy isn't restrictive enough to bring inflation back to the Fed's 2% target. Richmond Fed President Tom Barkin called the decision a close call but stopped short of saying he would have voted for a hike.
Sources: Investing.com, investingLive
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