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Dollar drops against euro, sterling in U.S. holiday trading

As investors sought protection on Monday due to concerns about a slowdown in the global economy, the dollar kept trade-sensitive currencies trapped near multi-year lows, and the euro was under pressure as a result.

The global risk sentiment has improved, which contributed to the rise of the euro and the pound sterling against the dollar on Monday during a trading session that was relatively quiet because of a holiday in the United States.

The financial markets in the United States were closed on July 4 in observance of Independence Day. As a result, investors anticipated a slow trading day on global markets, with significant currencies gaining some ground against the United States dollar, which had reached its highest level in two weeks on Friday.

The euro increased by 0.3 percent to $1.0457, although it maintained its position slightly higher than May’s five-year low of $1.0349. On the other hand, the pound’s value increased by 0.5 percent to $1.2155 after falling to a level that was not seen for two weeks on Friday (1.1976). [GBP/]

According to Shaun Osborne, the chief FX strategist at Scotiabank, “quiet trading to start the week is seeing the U.S. dollar declined against most major currencies as it unwinds Friday’s gains while disregarding a minor risk-off tone in markets.” Mr. Osborne made this statement.

Osborne said that the recent reports that the White House will announce a relaxation of specific Chinese tariffs later this week to temper rising inflation helped inject some optimism back into the markets, “providing currencies an extra push against the U.S. dollar.”

After falling to their lowest levels in two years on Friday, the Swedish crown, the New Zealand dollar, and the Australian dollar increased in value on Monday.

But despite concerns of a worldwide economic slowdown, the euro’s value stayed relatively close to its lowest level against the safe-haven dollar in nearly five years.

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The conflict in Ukraine and the economic repercussions of that conflict, particularly the skyrocketing prices of food and energy, have been a significant factor in the euro’s decline versus the dollar this year. The euro lost 8% of its value against the dollar in 2014. The disparity in response to increased inflation between the European Central Bank and the Federal Reserve of the United States has also been a factor that has worked against the euro.

The European Central Bank (ECB) is expected to hike interest rates this month for the first time in a decade, as data released on Friday revealed that inflation in the eurozone surged to yet another record high.

As the European Central Bank (ECB) is planning to raise interest rates on July 21 by “a paltry 25 basis point,” Jeremy Stretch, head of G10 FX strategy at CIBC, stated that he anticipated headwinds on the euro to continue.

According to what he had said, “ECB action is still mild when contrasted with a 75bps boost by the Fed.” “Beyond the issue of monetary policy at the ECB, the key risk variable relating to the European Union is the energy industry.”

Even while markets have lowered some of their anticipation for rate hikes in the United States, demand for safe-haven assets has kept the dollar’s value relatively high. The market is putting in approximately an 85 percent possibility of another boost of 75 basis points this month, and rates will be between 3.25 percent and 3.5 percent by the end of the year – before decreases in 2023.

The dollar index for the United States declined by 0.15 percent to reach 104.9, which is not too far below the two-decade high of 105.790 it reached last month.

Regarding the rest of the week, investors are keeping a close eye out for the publication of the minutes from the Federal Reserve’s meeting from the previous month on Wednesday and the employment data from the United States on Friday.

On Tuesday, the Reserve Bank of Australia will have a meeting, and financial markets anticipate that following the meeting, interest rates will increase by 40 basis points (bp). If an increase of that amount, or thereabouts, is implemented, the Australian dollar could not get much of a benefit from it.

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