The dollar fell after Trump's comment that Iran is open to a deal. Brent crude stabilized above $76, while ECB rate hike bets rise to 90% for September, boosting EUR/USD.
Alpha Score of 64 reflects moderate overall profile with strong momentum, strong value, weak quality, moderate sentiment.
The dollar fell on Monday after President Donald Trump said Iran is seeking a deal, a shift from weeks of escalation that had pushed the U.S. currency higher. The S&P 500 rose, Brent crude pulled back from recent highs, and Treasury yields fell, all weighing on the dollar index.
The oil rally earlier this year revived expectations of monetary tightening in Europe. The futures market now assigns a 50% probability to two rate hikes by the European Central Bank and the Bank of England in 2026. The ECB is seen as 90% likely to raise its deposit rate in September, according to futures pricing. The minutes of the ECB's June meeting showed that even with three rate hikes by 2027, inflation would stay above the 2% target into the first half of that year.
The ECB faced criticism for being slow to tighten in 2022. It is now leaning toward earlier action, even though the eurozone economy is weaker and borrowing costs are higher than four years ago. The fear is that rising energy prices will become embedded in core inflation, pushing the central bank to act.
By contrast, the futures market prices in only a 40% probability of two Federal Reserve rate hikes. That divergence supports EUR/USD.
The market is also looking at oil supply through the Strait of Hormuz, where tanker traffic has fallen to about 25 vessels a day from 30-50 recently. Brent crude has stabilized above $76 a barrel. Hopes for U.S.-Iran talks are preventing a further price rise, even as the strait remains effectively closed to normal traffic.
The dollar's weakness helped USD/JPY bears push the pair lower. Japan's Finance Minister Satsuki Katayama added pressure by calling on pension funds, including the GPIF, to increase domestic investments. Traders said the call was more effective than verbal intervention in supporting the yen.
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