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Title: Dollar Down as Investors Brace for ECB Hike, Russian Gas Restart

Jul 21, 2022 12:00AM ET

By: AnalysisWatch

The dollar weakened against the euro on Thursday morning in Asia as the European Central Bank is set to raise interest rates for the first time since 2011 and the key Russian gas pipeline is expected to reopen later in the day.

The U.S. dollar index, which tracks the greenback against a basket of other currencies, was down 0.19% at 106.87 by 11:44 PM ET.

The USD/JPY pair rose 0.05% to 138.27, with the Bank of Japan leaving its interest rate unchanged despite forecasting higher consumer inflation amid higher global commodity prices.

The AUD/USD pair rose 0.11% to 0.6892, and the NZD/USD pair fell 0.08% to 0.6222.

The pair USD/CNY rose 0.12% to 6.7637, while the pair GBP/USD gained 0.09% to 1.1980.

The euro recorded gains this week as investors expected the ECB to raise interest rates by 50 basis points. In addition, the Nord Stream pipeline is set to resume operations on Thursday after a 10-day maintenance pause.

Investors debated whether the ECB would go ahead with a previously announced 25 basis point hike or a half-point increase to curb galloping inflation. The central bank is also likely to unveil its new crisis management tool.

"Political uncertainty in Italy is complicating the ECB's plans to announce details of its new anti-fragmentation tool, especially regarding the conditions under which the tool can be triggered," and a lack of clarity will likely weigh on the euro, National Australia Bank currency strategist Rodrigo Catril wrote in a note to clients.

At the same time, NAB expects a half-point hike and a forecast for another half-point hike in September, "with the bank aiming to bring forward rate hikes ahead of weaker conditions later in 2022 and into 2023, when room for maneuver may be more limited," Catril said.

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