Dollar Little Changed As Traders Await Key U.S. Data

A woman holds Euro banknotes in this illustration taken May 30, 2022. Reuters / DADO RUVIC

The dollar was little changed after the euro briefly slid to a new two-decade low on Thursday, and sterling held to gains after Boris Johnson said he was quitting as British prime minister.

Investors await U.S. jobs data on Friday and the consumer price index next week, which should signal the pace of inflation and whether the Federal Reserve continues to aggressively hike interest rates when policymakers next meet on July 26-27.

"What's being priced into the July Fed meeting is predicated on that inflation print coming in reasonably elevated. We suspect that it will," said Bipan Rai, North America head of FX strategy at CIBC Capital Markets in Toronto.

The strength of non-farm payrolls on Friday should also point to how fast wages are rising, while the Fed doesn't appear to be as encumbered as other major central banks, he said.

"To us that suggests the U.S. dollar is still going to be the currency that outperforms," Rai said.

The U.S. central bank should raise rates by 75 basis points later this month and then most likely deliver a 50 basis point hike at its following policy meeting in September, Fed Governor Christopher Waller said on Thursday.

The dollar index, a measure of the dollar's value against six counterparts, rose 0.065% to 107.11 after peaking at 107.27 on Wednesday, a level not seen since late 2002. The euro was down 0.26% to $1.0157 after setting a fresh two-decade low of 1.01445 on Thursday.

Investors are grappling with the risks of a recession and whether rate hikes will be paused as global demand wanes.

The Atlanta Fed's GDPNow model estimates seasonally adjusted GDP growth on an annual basis in the second quarter was -2.1%.

Implied volatility remains near its highest levels since late March 2020 at 11.2%, reflecting a nervous market as investors contemplate parity between the euro and dollar.

"Parity is within reach, and one can expect the market to want to see it now," said Moritz Paysen, currency and rates advisor at Berenberg.

According to George Saravelos, global head of forex research at Deutsche Bank, "if Europe and the U.S. slip-slide into a recession in Q3 while the Fed is still hiking rates, these levels (0.95-0.97 in EUR/USD) could well be reached."

Commodity-linked currencies strengthened as copper prices climbed. Some investors returned to the market on Thursday after heightened recession fears sent the red metal to its lowest level in nearly 20 months.

The Australian dollar rose 0.86% to 0.6839 against the greenback after recently slipping to its lowest level since June 2020 at 0.6762.

The dollar fell 0.43% to 1.2980 versus the Canadian dollar.

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