Title: Dollar Edges Lower; Euro in Demand Ahead of ECB Meeting

Jul 20, 2022 02:39 AM ET

By: AnalysisWatch

The U.S. dollar edged lower in early European trade on Wednesday, while the euro saw some demand ahead of this week's key European Central Bank meeting.

At 02:40 AM ET, the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 106.517, far from its two-decade high of 109.29 reached last week.

Greater risk appetite, reflected in equity market gains, led to a decline in the dollar this week. The weakness coincided with lowered expectations of a hefty 100 basis point rate hike at next week's Federal Reserve policy review, after two of the most aggressive members of the Federal Open Market Committee—James Bullard and Chris Waller—said they still expect a 75 basis point increase.

On the other hand, the euro rallied after briefly breaking parity with the dollar last week for the first time in two decades.

The EUR/USD pair rose 0.1% to 1.0235 on Wednesday after rising 0.75% in the previous session, its strongest daily gain in a month.

Traders are focused on Thursday's European Central Bank meeting, where policymakers are considering raising interest rates by more than the expected 50 basis points after announcing a 25 basis point hike in June, according to Reuters.

The euro was supported by Reuters reports that Russia is expected to resume gas supplies to Germany via the Nord Stream 1 pipeline on time on Thursday after completing scheduled maintenance, easing fears of an energy crisis on the continent.

GBP/USD rose 0.1% to 1.2003 after U.K. consumer price inflation rose to an annual rate of 9.4% in June, the highest rate since early 1982.

AUD/USD rose 0.1% to 0.6902 after minutes from the Reserve Bank of Australia's July meeting showed the central bank believes further monetary tightening is needed to curb inflation.

The USD/JPY rose 0.1% to 138.32 ahead of the Bank of Japan meeting on Thursday, where the central bank is expected to keep monetary stimulus unchanged