The US dollar (USD) index showed resilience in June, gaining 0.3% month-on-month (m-o-m) for the second consecutive month. The currency faced various challenges throughout the month, with the US Federal Reserve’s (Fed) cautious stance and unexpected inflation figures influencing its performance. However, a robust job market report later in the month sparked concerns that the Fed might adopt a more hawkish approach, providing support to the USD. On a year-on-year (y-o-y) basis, the index remained down by 0.8%.
Against major developed market currencies, the USD exhibited mixed results in June. It weakened against the euro and the pound by 0.4% and 1.1% m-o-m, respectively. However, it gained strength against the yen by 2.9% over the same period. On a y-o-y basis, the USD showed notable growth, appreciating by 2.5% and 5.5% against the euro and yen, respectively, but depreciated by 2.5% against the pound.
In contrast, against emerging market currencies, the USD faced a different set of dynamics. It slightly declined against the rupee and significantly weakened against the real by 0.1% and 2.6% m-o-m, respectively. On the other hand, it surged against the yuan by 2.9% over the same period. Year-on-year, the USD experienced notable gains, appreciating by 5.3% and 7.0% against the rupee and yuan, while losing ground against the real by 3.5%.
The divergence between nominal and real prices of the ORB (Organization of the Petroleum Exporting Countries Reference Basket) widened m-o-m in June. This was primarily driven by a decline in inflation, resulting in stronger real prices. Inflation, calculated as the difference between nominal price and real price, dropped from $1.12/b in May to a negative $1.78/b in June.
In nominal terms, accounting for inflation, the ORB price declined by 0.8% m-o-m, from $75.82/b in May to $75.19/b in June. However, on a y-o-y basis, the ORB recorded a significant drop of 36.1% in nominal terms.
In real terms, excluding inflation, the ORB price declined by 3.0% m-o-m, from $74.70/b in May to $76.97/b in June. Similarly, on a y-o-y basis, the ORB showed a notable decrease of 35.4% in real terms.
The USD’s performance in June was influenced by several factors, including the Fed’s monetary policy decisions, economic data, and global market sentiments. The pause in interest rate hikes due to lower-than-expected inflation temporarily weighed on the dollar. However, a positive jobs report later in the month reignited concerns about the Fed adopting a more hawkish stance, bolstering the USD.
Against major developed market currencies, the USD experienced varying degrees of volatility. The declines against the euro and the pound could be attributed to improved economic conditions and market sentiment in the Eurozone and the UK. On the other hand, the USD’s rise against the yen might be linked to investors seeking refuge in the currency amid uncertainties.
Emerging market currencies saw mixed reactions against the USD. While the rupee and real struggled against the greenback, the yuan experienced a significant depreciation, likely influenced by geopolitical tensions and concerns over China’s economic slowdown.
The ORB’s nominal and real price divergence was mainly driven by inflation dynamics. With inflation easing, real prices appeared stronger relative to nominal prices. The overall decline in the ORB price, both in nominal and real terms, indicated continued challenges faced by the oil market, potentially influenced by factors such as global supply, demand fluctuations, and geopolitical tensions.
In conclusion, the US dollar index showed resilience and a slight gain in June despite facing challenges and volatility throughout the month. The currency’s performance was influenced by the Fed’s cautious approach towards interest rates and inflation trends. While the dollar’s value fluctuated against major developed and emerging market currencies, it maintained its strength on a y-o-y basis against some of them. The ORB’s nominal and real price divergence reflected the impact of inflation on oil prices, which continued to face challenges in the global market. Overall, market participants remained watchful of economic data and central bank decisions, which could influence the USD’s future trajectory and impact global financial markets.