Dollar strength dominated in the first half of July as traders speculated that the US Fed could take rates as high as 6% in a protracted tightening cycle that has already seen 17 rate hikes. The greenback also benefited as a "safe haven" store of value amidst continued conflict in the Middle East. However, as soon as signs of a weakening US economy started trickling in, the dollar lost steam and began a decline. The markets questioned the ability of Fed Chief Ben Bernanke to engineer a soft landing, and wondered if he had perhaps taken policy tightening too far. The disappointing NFP figures drove the idea home, changing traders focus from further rate hikes to talk of a pause and possible recession.
Boris Schlossberg
Senior Currency Strategist
[email protected]
Terri Belkas
Junior Currency Analyst
[email protected]
