With the Greek debt crisis resolved, at least for a couple of months, the main subject influencing the foreign currency markets are monetary policies in various countries, esspecially it's main element which is the interest rates. As all main economies are don't seem to be fully on a growth path allowing for a monetary ploicy tightening in the form of raising interst rates, all eyes are now on the Fed as it seems that that's where the first rate hike will take place. With the US economy showing much improvement in recent months and chairwoman Yellen making some hints that a potential rate hike could take place as soon as September the USD has appreciated in recent weeks posibly already pricing in a September rate hike. However, last week we have seen the USD decline against all major currencies except the Yen. The USD Index shows the fluctutaion of the USD against a basket of 6 currencies: EUR, JPY, GBP, CAD, CHF and SEK. Last week it has dropped from about 97.60 to around 96.60.

Therefore, the question arises whether last week's drop of the USD is a temporary retracement which will make more room for the USD to appreciate in anticipation of a rate hike or is the market actually seeing the rate hike as less likely?

The US economy has improved in recent months, however, recent data releases have not been so clear. Fed chairwoman Yellen has been observing the labor market, but after employment steadily improving we have seen some downturn. Nonfarm payrolls for July came in lower and last week's claimant count higher. With unemployment still at 5.3% these data releases are not dissastorous however, show that there might be some concern. however, what looks very positive is consumption as retail sales in July have risen by 0.6% beating expectations.

Furthermore, as the strong dollar has hindered exports in recent months a rate hike at this moment might be too early and could lead to even more drastic drop in exports and a fullblown slowdown in the economy.

Another aspect which has to be taken into account and currently is pointing to a rather delayed US rate hike is the situation in the global economy. And with the current slowdown in China the effect on the US economy might more of a concern than before.

Summing up, last week's USD decline could be temporary, but if these concerns persist then we may see this decline to continue. However, if we'll see some positive data supporting US growth then the market expectations for a rate hike will rise.
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