Fundamental Comment

Dollar firms to six-month high vs yen, ahead of US CPI

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The U.S. dollar climbed to a six-month peak on Thursday, extending its gains for a fourth straight session, on mounting bets the Federal Reserve would hike interest rates at least twice more this year.

The USDJPY pair set a new six-month peak today at 112.46, bracing for a sharp weekly advance this week.

While the yen is deemed the most favorite safe haven for investors, amid the escalating trade war between the U.S. and China, there is still high demand on dollar on expectations of further rate hikes by the Fed.

The U.S. producer prices recorded the biggest annual increase in 6 1/2 years in June, moving in line with the Fed’s outlook for gradual rise in inflation.

Later in the day, the U.S. consumer prices for June should provide clearer evidence about inflation and thereby how fast the Fed could hike interest rates.

Markets were rattled on Wednesday after Trump’s threat to impose tariffs on an extra $200bn of Chinese products.

Despite recovery in global equities on Thursday, uncertainty still looms as China vowed to retaliate to the U.S. new tariffs.

“China resolutely opposes such behavior and will have to take the necessary countermeasures," China's Ministry of Commerce spokesman Gao Feng said.

The European Commission slashed its growth forecasts for the euro area to 2.1% this year, down from 2.3% expected three months ago, citing the rising threat of a trade war.

Markets have witnessed a change in behavior amid the escalating trade tensions, as they resort more to the dollar as a refuge rather than buying yen, franc or gold.

The dollar index remained firm at 94.56, the highest in one week, resuming its rise for a fourth session in a row.

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