The Dollar Index
The dollar index, which measures the U.S. currency against six other units, was at 100.76, set for a weekly drop of 0.2%. The index hit a one-month low earlier this week on easing chances of a near-term rate hike but safe-haven flows have helped support the greenback.
The dollar index has been affected by the ongoing conflict in the Middle East, with oil prices reaching near one-month highs. This has led to a flight to safety, with investors seeking refuge in the U.S. currency.
Global Markets
Global markets have been volatile in recent days, with the tech-led global equity market plunge and ongoing disruption to Strait of Hormuz traffic triggering a flight to safety. This has led to a surge in demand for the dollar, with the currency recovering some of its losses from earlier in the week.
The euro remained flat at $1.1436, putting it at a 0.2% rise in the week. Sterling fell 0.2% to $1.3455, but posted its third straight week of gains following UK economic growth figures and expectations for greater political certainty with incoming Prime Minister Andy Burnham reportedly set to pick a centrist finance minister.
The Australian dollar ended with a third week of gains, although it was 0.23% softer on the day at $0.6980 as risk-off sentiment prevailed, with global stocks falling on Friday.
U.S. Consumer Sentiment
U.S. consumer sentiment climbed to a five-month high in July, although traders said the respite may prove temporary with renewed conflict in the Middle East driving up gasoline prices.
The Japanese yen was flat, fetching 162.44 per U.S. dollar, remaining rooted near the 40-year low of 162.84 it touched at the start of the month. Traders remained wary of official intervention from Tokyo after Japanese Finance Minister Satsuki Katayama reiterated the government’s readiness to take decisive action.
U.S. Retail Sales
U.S. retail sales rose slightly in June as lower gasoline prices weighed on receipts at service stations. But online spending surged, prompting economists to upgrade their second-quarter growth estimates.
The economy’s resilience was underscored by other data also showing labor market stability. Economists believe the Federal Reserve will keep interest rates unchanged later this month after data showed consumer price inflation had cooled in June.
Yet policymakers are wary of banking too heavily on one month of improvement after months when inflation moved in the wrong direction. Chances for a Fed hike in July stood at 14%, versus a 25% implied probability last week, according to the CME FedWatch tool. Traders are pricing in 30 basis points of hikes by December.
