The US dollar hit a more than two-and-a-half-year low against the euro during yesterday’s late session, with the euro breaching the 1.18 mark. The dollar index fell to its lowest level since May 2016, as it traded at 92.79. During the Asian session today, the US currency was broadly steady against most major currencies. The aussie gained following the Reserve Bank of Australia decision to keep its cash rate unchanged.
The US dollar plunged against most major currencies in yesterday’s last session as the currency has been battling several headwinds. The departure of White House communications director Anthony Scaramucci added to the uncertainty over the US political outlook and pushed the dollar lower. This was the latest political issue that accumulated in July, following the failure of the repeal of Obamacare in the Senate, the departure and replacement of key White House staff and political controversies and investigations surrounding Trump’s family and close aids. The dollar is now down more than 9% so far this year, its worst performance for the first seven months of the year since 1986 when it fell 12.5%. During the Asian session, the dollar was relatively steady against most majors with the dollar/yen pair at 110.20, euro/dollar at 1.1825 and pound/dollar at 1.3214.
The euro gained the most against the dollar linked to the greenback weakness but also due to traders buying the common currency on the back of month-end portfolio adjustments and expectations that the European Central Bank will start tightening monetary policy soon. The eurozone economy is doing better with unemployment falling to 9.1% in June while the core CPI figure, which excludes food and energy prices, rose 1.3% year-on-year – the highest since August 2013, the Eurostat report revealed yesterday.
Australia’s central bank kept interest rates unchanged at 1.5% on expectations that the strengthening currency is going to subdue inflation and weigh on the growth outlook. Many economists expected this decision and are also now forecasting the central bank to remain dovish in its outlook until the economy is put on a sustainable footing. The RBA Governor Philip Lowe said “The higher exchange rate is expected to contribute to subdued price pressures in the economy…It is also weighing on the outlook for output and employment.’ The aussie gained in early Asian trading, but was relatively flat at 0.7993 as European traders were starting the day.
In other forex moves, the pound was broadly flat against the dollar following yesterday’s surge with the pair last trading at 1.3211. The New Zealand dollar was pressured against the greenback to last trade at $0.7496.
Looking at commodities, oil prices have continued to rise for more than a week on tightening US supply and possible sanctions against Venezuela. WTI was last trading at $50.29 a barrel while Brent was at $52.79. Gold prices held steady near seven-week highs early Tuesday, supported by a slump in the U.S. dollar and political uncertainty. The precious metal was last trading at $1,268.22 an ounce.