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Dollar consolidates at 2-decade high; euro at parity
Global Banking & Finance Review®
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By Saikat Chatterjee
LONDON (Reuters) – The U.S. dollar held at a two-decade high on Friday as a broad wave of risk aversion swept through global markets, with traders flirting with the prospect of a 100 basis point rate hike by the Federal Reserve later this month.
Currencies perceived as riskier, including the Aussie and the pound, were under pressure as a barrage of negative news over the last 24 hours weighed on sentiment.
Against a basket of its rivals, the dollar rose to its highest levels since September 2002 above 109, as the U.S. banking earnings season kicked off on a weak note, China’s growth in the second quarter tanked more than expected and Italy faced a new political crisis.
“A stabilisation in the dollar around current levels is possible today, but we continue to highlight: a) limited scope for a correction; b) a balance of risks still tilted to the upside in the near term,” ING analysts said in a note.
The greenback was on track for its third consecutive week of gains as traders ramped up bets the Fed would go for a super-sized tightening at their July 26-27 meeting after data on Wednesday showed U.S. consumer price inflation racing at the fastest pace in four decades.
Those bets were pared after Fed Governor Christopher Waller and St. Louis Fed President James Bullard both said they favoured another 75 bps hike for this month, in spite of the inflation figures.
The euro was flat at $1.0026, after bouncing back from below parity on Thursday for a second day.
The single currency dipped as low as $0.9952 after Italian Prime Minister Mario Draghi offered to resign, but that was rejected by the country’s president.
China’s yuan held at a two-month low against the dollar and looked set for its biggest weekly drop since May as the weak data raised doubts about this year’s economic growth target.
(Reporting by Saikat Chatterjee Editing by Mark Potter)
Foreign exchange, or forex, refers to the global marketplace for trading national currencies against one another. It is the largest financial market in the world, where currencies are bought and sold.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. Central banks attempt to limit inflation, and avoid deflation, to keep the economy running smoothly.
A central bank is a national institution that manages a country's currency, money supply, and interest rates. It oversees the banking system and implements monetary policy to stabilize the economy.
Currency hedging is a financial strategy used to reduce the risk of adverse price movements in an asset, particularly in foreign exchange markets. It involves taking an offsetting position in a related currency.
Economic growth refers to the increase in the production of goods and services in an economy over a period of time. It is typically measured by the rise in real GDP.
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