The U.S. dollar held on Tuesday just above a one-week low hit overnight against major rivals as markets discounted the prospect of a Federal Reserve rate hike this month.
Bets on outsized easing rose last week after data showed U.S. inflation, already at a four-decade high, continued to accelerate in June.
But some Federal Reserve officials were quick to throw cold water on such talk, and Friday’s figures showed consumer inflation expectations falling to their lowest level in a year.
Traders in futures contracts tied to the Federal Reserve’s short-term federal funds rate, which had been leaning toward a full percentage point rate hike, shifted their bets firmly in favor of a 0.75 percentage point hike at the upcoming meeting, as the odds of last time they were around 81%.
The dollar index — which measures the greenback against six peers — was unchanged at 107.47.
That was above Monday’s low of 106.88, but also well back from last week’s high of 109.29, a level not seen since September 2002.
The euro, the most heavily weighted currency in the dollar index, was down 0.08 percent at $1.01355, but that came after gaining about 0.6 percent overnight for a second day of strong gains.
The common currency fell to $0.9952 on Thursday for the first time since December 2002, weighed down by uncertainty over a potential collapse in energy supplies in the eurozone.
Traders are biting their nails ahead of Thursday, when gas is due to resume flowing through the Nord Stream pipeline from Russia to Germany after a planned maintenance shutdown.
Russia’s Gazprom declared force majeure on gas supplies to Europe for at least one major customer in a July 14 letter seen by Reuters on Monday.
Despite the uncertainty, the European Central Bank is poised to raise interest rates on Thursday for the first time in more than a decade.
It telegraphed a 25-basis-point move, but heated inflation had some traders eyeing a half-point increase.
“The balance of risks is tipped towards a weaker euro (while) the path of least resistance for the US dollar is to continue rising on a poor global growth outlook,” Commonwealth Bank of Australia analyst Carol Kong wrote in a client note. citing the dollar’s role as a safe haven.
Elsewhere, the yen hovered near a 24-year low ahead of the Bank of Japan’s policy decision on Thursday, with the central bank repeatedly committing in recent days to continuing ultra-easy adjustments.
The dollar was little changed at 138.135 yen, not far from Thursday’s peak of 139.38 yen, a level not seen since September 1998.
The risk-sensitive Australian dollar fell 0.06% to $0.6809 after climbing to a one-week high of $0.6853 on Monday, from as low as $0.66825 on Thursday, the weakest level in more than two years.
Sterling was down 0.13% at $1.1935, retreating from Monday’s one-week high of $1.2032.
It fell to $1.1761 on Thursday for the first time since March 2020, as Britain faces a bitter and controversial race to replace ousted Prime Minister Boris Johnson.