Ahead of Vital Inflation Statistics, the Dollar Remains Under pressure in the Forex Market

Jul 29, 2022

The U.S. Dollar Index has dropped below 106.00, its lowest point since early July, as the dollar continues to decline early on Friday. Despite the unimpressive macroeconomic data releases from the U.S., the market attitude changed positively, which made the dollar continue to lose appeal. The second-quarter euro area GDP and the preliminary July Harmonized Index of Consumer Prices (HICP) statistics will be included in the European economic docket. The Federal Reserve's favored inflation indicator, the Personal Consumption Expenditures Price Index (PCE) data, will be made public by the U.S. Bureau of Economic Analysis (BEA) before the weekend.

According to the BEA's preliminary estimate released on Thursday, the U.S. economy shrank at an annualized pace of 0.9 percent in the second quarter. After these data, the likelihood of a 75 basis point rate hike in September decreased toward 20%, according to the CME Group FedWatch Tool, adding to the pressure on the dollar. Risk flows continued to rule the financial markets, thanks to the significant increase in Wall Street's critical indexes following positive earnings results. U.S. stock index futures are up between 0.3 percent and 1.4 percent early Friday.

The EUR/USD managed to launch a comeback after falling toward 1.0100 during Thursday's European trading hours and ended the day barely altering near 1.0200. The pair registers modest daily advances above 1.0200 in the early hours of the European morning. Ignazio Visco, a member of the Governing Council of the European Central Bank (ECB), commented on the outlook for policy on Thursday, saying that they don't need to worry about the exchange rate now, making it harder for the common currency to beat its rivals. In the second quarter, the euro area's GDP will be expected to expand by 0.2 percent quarterly. The HICP is anticipated to stay at 8.6 percent.

On Friday, the GBP/USD currency pair trades at its highest level in a month as it advances toward 1.2200. Consumer Credit data for June will be made public by the Bank of England (BOE) during the European session.

USD/JPY is trading below 133.00 after losing more than 200 pip on Thursday. The significant decrease in U.S. Treasury note yields appears to be putting a lot of pressure on the pair. The benchmark 10-year U.S. Treasury note yield was down 0.75 percent at 2.66 percent as of press time after falling nearly 4 percent on Thursday.

Gold is trading at its highest level in three weeks, above $1,760 on Friday, as it keeps increasing. Declining yields and widespread dollar weakness fuel the rise in XAU/USD.

On Thursday, Bitcoin took advantage of the uptick in market sentiment and increased by almost 4% before entering a consolidation phase near $24,000. On Thursday, Ethereum gained more than 5%, and as of this morning in Europe, it is trading at a level above $1,700.