The dollar index (DXY) fell by 0.05% on Wednesday after an early advance, as demand for liquidity decreased with stock market recovery. Tensions between the US and Iran escalated following US strikes on over 80 targets in Iran, affecting crude oil prices, which surged more than 4%. The swaps market reflects a 31% probability of a 25 basis point rate hike by the Federal Reserve at the upcoming FOMC meeting on July 28-29.
The euro (EUR/USD) rose by 0.14% after the European Central Bank (ECB) indicated the possibility of additional rate hikes amid inflation concerns. The market anticipates a 21% chance for a 25 basis point increase by the ECB at its meeting on July 23. Meanwhile, the yen (USD/JPY) gained 0.22%, although it remains near a 39-year low, with a high risk of intervention by Japanese authorities. The market expects a mere 2% chance of a Bank of Japan rate hike at its meeting on July 31.
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