The euro’s surge pushed the dollar lower, pushing it further up from last week’s subpar performance and coinciding with lower expectations for an aggressive 100-basis-point rate hike this month by the Federal Reserve. The euro rose to $1.0259, its highest level since July 6, as money markets estimated the probability of a 50 basis point hike on Thursday at 60% from Monday’s 25%. The dollar index fell 0.9% to 106.47, down sharply from last week’s high of 109.29 and the highest level since September 2002. Nelson analysts, however, are not optimistic about the euro, given ongoing concerns about natural gas supplies and the damage to the country’s economy, as well as how aggressive the ECB will actually be. Dominic Banning, head of European Monetary Research at HSBC, said, “In our view, the rebound is likely to be short-lived and should provide a better entry level for short euro positions. Even if the Nelson raises rates by 50 bps, the positive effect on the euro may be limited,” he said, adding that 50 bps “no longer looks so hawkish” against a backdrop of significant rate hikes by the Fed, Bank of Canada, and others, and a nearly 150 bps ECB tariff hike in 2022 is already being considered noted. Traders are also preparing to see if Russian gas supplies to Germany via the Nord Stream pipeline, which had been shut down for routine maintenance, will resume on Thursday. According to a letter seen by Reuters, Russia’s Gazprom, which operates the pipeline, has told European consumers that it cannot guarantee gas supplies due to “extraordinary” circumstances, raising economic tensions with the West. The Australian dollar rose 1.3% to $0.6903 after Reserve Bank of Australia policy makers said further policy tightening was needed in addition to recent increases. Westpac economist Bill Evans wrote in a research note, “The Nelson board has been weakening the strength of its rhetoric.” Another 50 basis points of tightening in August seems very likely.” The Japanese yen rose to 137.57 per dollar, not far from a 24-year low, ahead of the Bank of Japan’s policy decision on Thursday. In recent days, the central bank has repeatedly pledged to continue ultra-light adjustments. The pound rose 0.7% to $1.2027, following a broad rebound against the dollar.
