Forex Market: US Dollar remains elevated as growth fears boost haven demand, risk-sensitive currencies under pressure

The US Dollar remained firm and risk-sensitive currencies were under pressure and in proximity to multi-year lows on Monday, as investors sought the relative safety of haven assets amid concerns over slowing global economic growth.

Trade volumes are likely to remain thin on Monday due to the Independence Day holiday in the United States.

The Dollar Index was little changed at 105.075, not far from June’s two-decade high of 105.790.

The EUR/USD pair slipped to lows unseen since June 15th on Friday after the latest macro data revealed Euro Area inflation had reached a new record high level in June – 8.6%, while exceeding market expectations and reinforcing the case for the European Central Bank to hike interest rates at its July meeting. EUR/USD was up 0.05% on Monday to trade at 1.0431, after sliding as low as 1.0365 on Friday.

GBP/USD hovered above Friday’s over two-week trough of 1.1976, being up 0.19% on the day at 1.2115.

USD/JPY was up 0.12% on Monday at 135.39, after advancing as high as 137.00 last week – a level not seen since September 24th 1998 (137.23), on diverging monetary policies in the US and Japan.

Market players are anticipating hawkish minutes of the Federal Reserve’s June meeting, at which the central bank raised interest rates by sizable 75 basis points. The minutes will be released on Wednesday.

The market is now pricing in an 85% chance of a second 75 basis point hike in July and a target range at 3.25% to 3.50% by the end of 2022.

Meanwhile, AUD/USD traded just above a fresh two-year trough of 0.6764 registered last Friday, being up 0.49% on the day at 0.6849, ahead of the Reserve Bank of Australia’s policy meeting on Tuesday.

NZD/USD also hovered above Friday’s two-year low of 0.6147.

“The Aussie and other commodity currencies and even euro and sterling will likely decline even more into the week, given markets currently are super-focused on the risk of a sharp slowdown in the global economy,” Carol Kong, currency strategist at the Commonwealth Bank of Australia, was quoted as saying by Reuters.