Is this the beginning of the end of the dollar rally?
Main U.S. indexes advance, Nasdaq leads
Tech leads S&P sectors; Comm Svcs weakest group
Euro STOXX 600 index up ~0.9%
Dollar, gold dip; bitcoin, crude advance
U.S. 10-Year Treasury yield inches up to ~4.20%
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IS THIS THE BEGINNING OF THE END OF THE DOLLAR RALLY?
The pullback of the dollar after a softer than expected U.S. June inflation print might suggest that the greenback's rally could be over.
The Federal Reserve's delay in easing its monetary policy has benefited the dollar in the first half of the year, which has mirrored the robustness of the U.S. economy so far.
However, after June's CPI report the currency market could see a change of course, FX strategist at Societe Generale Kit Juckes said in a note.
U.S. consumer prices fell for the first time in four years in June, drawing the Federal Reserve another step closer to cutting interest rates in September.
"In past dollar rallies, the currency hasn't turned on the first rate cut, so I'm braced for a difficult second half to the year", Juckes said.
"However, this episode of dollar strength has been so powerful and accompanied by such enormous capital flows, that a decent-sized correction is inevitable at some point", he added.
While the dollar strengthened, the yen is still trading around its weakest in 38 years, largely due to the wide gap between U.S. and Japanese interest rates.
"The USD/JPY has diverged from the trajectory of U.S. yields in recent weeks and the two are likely to come back together", said Juckes.
But it doesn't mean that the U.S. economic outperformance is over or that a long-term dollar decline is likely, he pointed out.
(Matteo Allievi)
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