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Title: Euro at one-week high, helped by rowback in Fed rate hike bets

Jul 18, 2022 04:26AM ET

By: AnalysisWatch

The euro strengthened to a one-week high on Monday, benefiting from the dollar's retreat after several Federal Reserve officials signalled they did not support accelerating the pace of interest rate hikes.

The comments, made late last week, knocked the dollar off two-year highs and encouraged traders to increase risk, giving a boost to global equities and non-dollar currencies, especially the euro.

The greenback's index, measuring its exchange rate against six world currencies, is now 1.8 percent lower than last week's 20-year highs and was 0.35 percent lower at 107.48 as of 8 a.m. GMT.

The euro, the index's main component, rose 0.5 percent to $1.0149 after falling below parity for the first time since 2002 last week.

Waller and St. Louis Fed Governor James Bullard said they favored a 75-basis-point rate increase at the July 26-27 meeting, not 100 basis points as some had predicted, after inflation was higher than forecast.

Following the comments, futures tied to the short-term federal funds rate strongly favored a 75 bp hike.

Speculators, however, remain negative on most currencies other than the dollar, with weekly US CFTC data showing aggregate long dollar positions at a seven-week high.

The data showed that they added $1 billion and $470 million to short positions in euros and yen, respectively.

This boosted the New Zealand dollar to a 10-day high against the US dollar of US $0.622, up 0.4%.

The Australian dollar also reached a one-week high.

The commodity-dependent kiwi and Australian dollar are getting some support from hopes of policy easing in China, where authorities have announced support for the real estate and banking sectors.

The week is shaping up to be a fateful one for the euro as the European Central Bank is expected to raise interest rates by 25 basis points on Thursday—the first time in more than a decade.

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