Dollar Down, Despite Aggressive Interest Rate Hike Expectations

The dollar was down on Thursday morning in Asia despite expectations of aggressive interest rate hikes that grew over the hawkish minutes of the U.S. Federal Reserve’s June meeting.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies dropped 0.23% to 106.85 by 11:56 PM ET (0356 GMT).

The USD/JPY pair edged down 0.13% to 135,76. The yen is down nearly 15% for the year and will likely remain weaker than 130 per dollar over the next six months given the Bank of Japan kept its monetary policy ultra-loose. The AUD/USD pair gained 0.61% to 0.6816, and the NZD/USD pair was up 0.54% to 0.6180. The USD/CNY pair inched down 0.09% to 6.7022, while the GBP/USD pair edged up 0.12% to 1.1945. “Right now, it feels to me that the whole world hates sterling, and I can see why. The Bank of England is in a difficult situation, Brexit has complicated issues, and we are faced with a lot of stagflationary pressures here in the UK,” Rabobank head of FX strategy Jane Foley told Reuters. “I don’t think investors are going to come back into sterling in a big way until they see more optimism with respect to growth.” The minutes from the Fed’s June meeting suggested the possibility of an “even more restrictive” monetary policy to prevent long-lasting inflation. Now investors have priced in another 75-basis point interest rate hike in July from the Fed. Despite the interest rate hike expectations, some analysts think the dollar will weaken in the coming 12 months, despite the euro now trading at its weakest in two decades. “Ultimately, people who say the dollar is going to weaken because the market is not pricing in as many interest rate hikes from the Fed as before are forgetting that the dollar is also a safe haven,” said Foley.