June 2021 was the best month for the US dollar since November 2016, when Donald Trump won the US presidential election. As a result, the U.S. Dollar Index rose nearly 3 percent during the month.
Thus, EUR/USD fell to $1.1840 on the first day of July, its lowest level since April 6, as investors turned to the US dollar ahead of Friday's US employment data. These could influence the Federal Reserve's stance on whether to start tapering its asset purchase program and the date of interest rate hikes.
ADP data on private sector employment in the U.S. released on Wednesday showed a larger-than-expected increase in employment in June. Investors are worried about the spread of the Delta variant, which has prompted some countries such as the U.K. and parts of Europe to take or plan renewed restrictions.
The euro lost 3.1 percent against the U.S. dollar in June as dovish comments from European Central Bank officials contrasted with a hawkish turn by the U.S. Federal Reserve and the possibility of interest rate hikes in late 2022 or early 2023.
The delay in the opening of the UK economy and the subsequent surge in Covid-19 illnesses are not positively impacting the GBP. Thus, the GBP/USD exchange rate came not far from the two-month low at $1.3787. In June, the UK government announced that there would be a delay in the full opening of the economy. Sterling lost 2.8 percent against the dollar in June, its worst month since September.
Good sentiment in stock markets may be causing a retreat from the safe-haven Japanese yen, which helped the USD/JPY exchange rate rise above JPY 111.40 to reach new 16-month highs. Tokyo authorities reported 714 new cases of coronavirus per day on Wednesday.
Yields on local 10-year bonds were near 6-month lows at 0.041 percent, while 10-year U.S. bonds hovered around 1.466 percent. Sentiment towards the yen weakened further as data last week showed that the unemployment rate rose to 3 percent in May, the highest reading since December 2020.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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