The dollar index (DXY00) Monday fell by -0.51% and posted a four-session low. Strength in the yen and yuan on Monday undercut the dollar. The yen rallied to a 1-week high against the dollar Monday after BOJ Governor Ueda said Japan’s negative interest rate policy could end by the end of the year. Also, the Chinese yuan strengthened against the dollar on better-than-expected Chinese credit growth news and after the PBOC said it would correct one-sided moves in the foreign exchange market whenever needed. In addition, Monday’s rally in stocks curbed the liquidity demand for the dollar.
EUR/USD (^EURUSD) Monday rose by +0.42%. A weaker dollar on Monday was supportive of the euro. Gains in EUR/USD were limited on weaker-than-expected economic news from Italy and after the European Commission cut its 2023 Eurozone GDP forecast, a dovish factor for ECB policy. The markets are discounting the odds at 38% for a +25 bp rate hike at this Thursday’s ECB meeting.
