The U.S. dollar index fell by 0.12% on Tuesday, driven by disappointing May housing reports—with housing starts down 15.4% month-over-month to a six-year low of 1.177 million, and building permits declining 0.7% to 1.413 million. This weakening dollar is further influenced by a 5% drop in WTI crude oil prices, now at a 3.5-month low, which could lead the Federal Reserve to adopt easier monetary policies. The Fed’s two-day meeting began on Tuesday, where no rate hikes are expected, but attention is on new Chair Kevin Warsh’s commentary on inflation forecasts.
In the Eurozone, the German ZEW economic sentiment index rose 20.7 points to a four-month high of 10.5, exceeding expectations of a decline to -5.5. Despite this, the euro saw limited gains, bolstered by the drop in crude prices benefiting Europe’s energy imports but constrained by declining yields on German bunds, now at an eight-week low of 2.92%.
The Bank of Japan (BOJ) raised its overnight call rate by 25 basis points to 1.00%, signaling continued monetary tightening, while maintaining its bond purchasing strategy. The yen showed a slight increase, supported by lower oil prices, but demand lessened as Japan’s Nikkei index reached an all-time high. The market anticipates a minimal chance of a further rate hike during the BOJ’s next meeting on July 31.
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