- Rumors about an imminent Middle East peace deal sent the USD index tumbling.
- The ECB raised interest rates but gave no signs that the cycle would continue.
The US dollar posted its worst daily decline in more than a month amid de-escalation in the Middle East, the ECB's tightening of monetary policy and an improvement in global risk appetite. The $75 billion IPO was successful and surpassed the previous record of $26 billion set by Saudi Arabian Oil in 2019.
The company's market capitalization was $1.77 trillion. Its initial public offering boosted stock indices and put pressure on the safe-haven dollar.
Prior to this, the US dollar had been unable to capitalize on the S&P 500's pullback as oil stubbornly refused to rise even amid military strikes against Iran. As soon as hostilities ceased and Donald Trump announced a peace deal, he fell. This combination of falling North Sea crude oil and rising stock indices is creating a tailwind for . It has allowed the euro to compensate for the disappointment of the ECB meeting.
The European Central Bank was the first to respond to price increases related to the oil crisis by raising interest rates. This is partly because borrowing costs in the eurozone are at a neutral level. They do not limit economic growth and the ECB can afford to act, unlike in the United States, where an increase in the federal funds rate to 4% or more would act as a drag on GDP.
At the same time, Christine Lagarde did not give clear signals about the continuation of the monetary tightening cycle. The European Central Bank's future decisions will depend on the data, which has disappointed EURUSD bulls. The same applies to the stagflation scenario in the forecasts. Rising inflation estimates and slowing economic growth risk causing a rift within the ECB. As a result, the deposit rate may not reach the 2.5% expected by markets and Bloomberg experts by 2026.
The fall of the US dollar, driven by the de-escalation of the conflict in the Middle East, has come as a balm for the wounds of the Japanese government. It had previously reached the levels seen during the April and May interventions following rumors about Kazuo Ueda's hospitalization a few days before the BoJ meeting. The central bank is expected to increase the overnight interest rate from 0.75% to 1%. However, investors were looking forward to the press conference of the head of the regulator with much greater interest.
He FxPro Analyst team
