FX UPDATE 31/07/2023

The US Dollar was on track for a monthly loss on the likelihood the Federal Reserve’s rate hike cycle could have come to an end with the 25-basis point rise last week. The Dollar index – measuring the currency against six rivals – was up 0.22% at 101.82 at the time of writing, but looked set for around a 1% fall, prolonging its loss to a second consecutive month.

Elsewhere, the Euro fell 0.05% to $1.10065, but could register a monthly gain of 1%. In addition, the European Central Bank policy meeting last week hiked the prospect of a pause to the rate hiking agenda in September. Moreover, the Pound rose slightly to $1.2850 ahead of the Bank of England's meeting scheduled for this week, during which a 25-basis point rise is forecast, Reuters news agency reports. “Even if the global monetary tightening has broadly run its course by now, the regional differences in growth and inflation dynamics will provide for some variations in the policy path,” according to Barclays analysts. “The BoE's decision will be on a knife's edge, but we stick to our forecast for a 50bp hike.”

The Japanese Yen declined on Monday, continuing losses from the end of last week as the central bank loosened its grip on interest rates. However, it looked on course to end the month with its first monthly rise since March, by over 1.5%. The Yen fell around 0.5% to 141.92 per Dollar in Asia trade at the time of writing. The Bank of Japan (BOJ) maintained ultra-low rates on Friday, whilst increasing the flexibility of its bond yield curve control. The Dollar did end Friday’s session up 1.2% against the Yen, yet this followed a fall of 1% to 138.05 Yen. “The BOJ threw a curve ball into the market ... with its cosmetic change to YCC - in essence, it was a brilliant move by the central bank, and they've managed to bridge the volatility that would come with a straight change to a -/+ 1% range in the YCC band,” said the head of research at Pepperstone, Chris Weston. “They've given themselves all the flexibility should they wish to tighten policy in the future without tidal waves in global bond markets.”

South Africa’s Rand edged up on Monday ahead of monthly trade data and following a robust performance throughout July. At the time of writing the Rand was trading at 17.5800 against the Dollar, a 0.11% rise from Friday’s close, and has gained more than 6% against the Dollar this month.

In India, the Rupee declined on Monday to 82.2625 to the Dollar, down from 82.2475 on Friday. For July, the local currency is down 0.3%. Twice this month the Rupee hit the range of 81.70-81.75, Reuters news agency reports. The central bank purchased Dollars around this level through public sector banks to stop further appreciation of the Rupee, according to traders. This offset foreign equity inflows of over $5.5 billion, and with the Reserve Bank of India “not in a mood to relent,” the Rupee looks to set to remain within the range of 81.70-82.50 for now.