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The U.S. dollar continued to hover near its lowest levels in over a year against the euro and sterling on Thursday, driven by a dovish stance from the Federal Reserve and emerging signs of weakness in the U.S. job market, both of which are reinforcing the case for potential interest rate cuts.
The dollar fell below the significant 145 yen mark as U.S. Treasury yields declined, with markets focusing on upcoming jobless claims data and a highly anticipated speech by Fed Chair Jerome Powell at the Jackson Hole symposium on Friday.
Image Source: The Edge Malaysia
The dollar index, which tracks the currency against a basket of major peers including the euro, sterling, and yen, remained stable at 101.14 as of 0015 GMT, after briefly dipping to 100.92 overnight—its lowest point this year.
The euro held steady at USD 1.1154 after reaching USD 1.1130 on Wednesday, its highest level since July of last year. Sterling also remained flat at USD 1.3092, following a climb to USD 1.31195 in the previous session, a level not seen since July 2023.
Minutes from the Federal Reserve’s July 30-31 meeting, released on Wednesday, revealed that officials were heavily inclined towards an interest rate cut at their upcoming September meeting, with some even considering immediate action. Additionally, a Labor Department report released the same day indicated that employers had added significantly fewer jobs than initially reported in the year through March.
Market traders are now pricing in a 38% chance of a 50 basis point (bp) cut at the Fed’s September 17-18 meeting, up from 33% the previous day, with a 62% probability of a 25 bp reduction, according to CME Group’s FedWatch Tool. As markets await Powell’s Jackson Hole speech, investors are eager for any hints regarding the potential size of the upcoming rate cut and whether further reductions could follow.
“We favor a 25 bp cut because the U.S. economy is still in good shape—50 bp cuts are usually reserved for situations where the economic outlook is under threat,” said Kristina Clifton, a senior economist and currency strategist at Commonwealth Bank of Australia.
Meanwhile, the dollar slipped 0.11% to 145.09 yen, after touching a low of 144.86 yen earlier. Traders are seeking more clarity on Japan’s monetary policy following conflicting signals from Bank of Japan Governor Kazuo Ueda and Deputy Governor Shinichi Uchida. Ueda is set to testify on Friday in a special parliamentary session to discuss the BOJ’s unexpected rate hike last month.
The Australian dollar also edged up 0.09% to USD 0.6750, staying close to its five-week high of USD 0.6761 reached on Wednesday.
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