Dollar stays under pressure ahead of key inflation data

The dollar selloff continues early Friday with the US Dollar Index falling to its weakest level since early July below 106.00. The positive shift witnessed in market mood despite the disappointing macroeconomic data releases from the US caused the greenback to continue to lose interest. The European economic docket will feature second-quarter Gross Domestic Product for the euro area alongside the preliminary Harmonised Index of Consumer Prices (HICP) data for July. Ahead of the weekend, the US Bureau of Economic Analysis (BEA) will release the Personal Consumption Expenditures (PCE) Price Index data, the Federal Reserve’s preferred gauge of inflation.

On Thursday, the advance estimate of the BEA revealed that the US economy contracted at an annualized rate of 0.9% in the second quarter. According to the CME Group FedWatch Tool, the probability of a 75 basis points rate hike in September fell toward 20% after this data, putting additional weight on the dollar’s shoulders. Meanwhile, the sharp upsurge witnessed in Wall Street’s main indexes on the back of upbeat earnings figures allowed risk flows to continue to dominate the financial markets. Early Friday, US stock index futures are up between 0.3% and 1.4%.

After having dropped toward 1.0100 during the European trading hours on Thursday, EUR/USD managed to stage a rebound and closed the day little changed near 1.0200. In the early European morning, the pair posts small daily gains above 1.0200. Commenting on the policy outlook, European Central Bank (ECB) Governing Council member Ignazio Visco said on Thursday that they don’t have to worry about the exchange rate for the time being, making it difficult for the shared currency to outperform its rivals. The euro area economy is expected to grow by 0.2% on a quarterly basis in the second quarter. The HICP is forecast to remain unchanged at 8.6%.

GBP/USD continues to push higher toward 1.2200 on Friday and trades at its highest level in a month. The Bank of England (BOE) will release the Consumer Credit data for June in the European session.

USD/JPY lost more than 200 pips on Thursday and is already down 100 pips on Friday, trading below 133.00. The sharp decline witnessed in US Treasury bond yields seems to be weighing heavily on the pair. The benchmark 10-year US Treasury bond yield, which fell nearly 4% on Thursday, was down 0.75% at 2.66% at the time of press.

Gold continues to push higher on Friday and trades at its highest level in three weeks above $1,760. Falling yields and the broad-based dollar weakness fuel XAU/USD’s rally.

Bitcoin took advantage of the improving market mood and gained nearly 4% on Thursday before going into a consolidation phase near $24,000. Ethereum rose more than 5% on Thursday and trades flat above $1,700 in the European morning.

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