US dollar slumps as market sentiment improves

Demand for the US dollar tumbled on Monday after touching parity against the euro for the first time in almost 20 years last week. Last week's University of Michigan Consumer Sentiment came better than expected, with the index topping 51.1 vs. an estimated 49.9. The positive in the report is that inflation expectations tempered, with consumers seeing inflation at 2.8% over a 5-year horizon, lower than 3.1% in June. US equities also rallied on Friday in response to a new round of bank earnings and promising economic data as concerns of a 100-basis-point rate hike from the US Federal Reserve to combat inflation subsided. The USD has soared this year thanks to a combination of rising US interest rates and struggling economies in Europe and China. The surprise interest rate hike of 100 basis points by the Bank of Canada last week prompted speculations that the US Federal Reserve could follow at its July 27 meeting. However this is not certain, and a smaller increase is still possible. The US Dollar Index was down 0.75% at 107.25 at the time of writing.