Dollar Drops Amidst Renewed Rate Cut Hopes
08 July 2024 - 7:38PM
RTTF2
The U.S. Dollar declined significantly during the week ended
July 5 amidst weak economic data from the U.S. that renewed
expectations of a rate cut by the Fed. The greenback weakened
against the euro, the pound, the Australian dollar, the Japanese
yen, the Canadian dollar, the Swedish krona as well as the Swiss
franc.
The Dollar Index (DXY), a measure of the Dollar's strength
against a basket of 6 currencies plunged during the week spanning
July 1 to 5. The DXY which had closed at 105.87 on the last Friday
of June, finished trading at 104.88 on the first Friday of July.
Though the index edged up at close on Monday, it declined steadily
on the remaining days of the week resulting in a weekly drop of
0.94 percent. The weekly trading ranged between a high of 106.05
and a low of 104.82.
Data released on Monday by the Institute for Supply Management
showed Manufacturing PMI in June unexpectedly declining to 48.5
from 48.7 in May, missing market expectations of 49.1. The third
straight month of falling manufacturing activity and the weakest
reading since February reinforced the view that the Fed indeed had
sufficient headroom to ease interest rates from the current high
level.
The Dollar also weakened in response to the Fed Chair Jerome
Powell's remarks at the European Central Bank's Forum on Central
Banking on Tuesday that acknowledged the disinflationary trends in
the American economy.
However, the DXY touched a high of 106.05 on Tuesday amidst data
that showed the number of job openings rise to 8.14 million in May
from a three-year low of 7.92 million in April. The data surprised
markets which had anticipated a reading of 7.91 million.
The Dollar further retreated on Wednesday amidst not-so-hawkish
FOMC minutes as well as a lackluster Services PMI reading.
According to the FOMC minutes, the Fed officials acknowledged the
easing in price pressures. The ISM services PMI that recorded a
lower-than-expected reading of 48.8 also weakened the greenback.
Markets had expected only a decline to 52.5 from 53.8 in the
previous month.
Data released by the U.S. Bureau of Labor Statistics on Friday
morning showed the American economy added 206 thousand to non-farm
payrolls in the month of June. Though markets had expected an
addition of 190 thousand, the reading for June revealed a decline
from 218 thousand additions recorded in the previous month. Also
quite unexpectedly, the unemployment rate rose to 4.1 percent. The
same was seen steady at 4 percent.
The steady climb in the unemployment rate over the past few
months reinforced expectations of a rate cut by the Fed. The
unemployment rate was 3.8 percent in March, 3.9 percent in April,
and 4 percent in May. The dollar weakened amidst growing
expectations that the Fed would take cognizance of the decline in
price pressures emanating from the labor market.
The Euro surged 1.15 percent against the Dollar during the week
ended July 5, boosted by diminishing expectations of an electoral
win for the far-right in France. Comments made by the ECB President
that it was not in a hurry to cut rates as well as doubts over rate
cuts revealed in the ECB minutes released during the week also
helped the EUR/USD pair rally to 1.0836 from 1.0713 a week earlier.
The common currency ranged between $1.0709 and $1.0843 during the
week. Data released during the week also showed inflation in the
region declining as expected to 2.5 percent in June from 2.6
percent in the previous month.
The pound rallied more than a percent against the Dollar amidst
the Labour Party's landslide victory in U.K. elections. The
sterling, which had closed at $1.2642 rose 1.31 percent during the
week to close at $1.2808. The GBP/USD pair traded between a low of
1.2614 and a high of 1.2819.
The Aussie too jumped during the past week amidst minutes of the
Reserve Bank of Australia released during the week, revealing
concerns about inflation risks. The AUD/USD pair traded between a
low of 0.6633 and a high of 0.6754. The addition during the week
was 1.23 percent from 0.6667 on June 28 to 0.6749 on July 5.
The Japanese yen also edged up against the U.S. Dollar during
the week spanning July 1 to 5. The USD/JPY pair which had closed at
160.83 on June 28, decreased to 160.72 in a week's time. The pair
ranged between 162.01 and 160.34 amidst weak economic data and
waning expectations of a monetary policy tightening by the Bank of
Japan.
Amidst recent indications of a cooling labor market in the U.S,
market focus has shifted to the consumer price and producer price
inflation updates due from the U.S. in the current week. Amidst the
market influences, the Dollar Index is more or less flat at 104.85.
The EUR/USD pair has increased to 1.0842 whereas the GBP/USD pair
has rallied to 1.2839. The AUD/USD pair is flat at 0.6749. The
yen's strength has dragged down the USD/JPY pair to 160.61.
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