He Dollar recovers from its lows five-week period as investors consider the possibility of a US interest rate cut in September following comments from the Fed Chairman Jerome Powelland the increased chances of re-election of Donald Trump.
The Japanese yen is weakening on Asian markets after hitting a monthly high on Monday, keeping traders cautious about a possible intervention by Tokyo.
On the eve, Powell pointed out that the three US inflation readings for the second quarter “add some confidence“that the pace of price increases is returning to the Fed’s target on a sustainable basis. These comments, possibly Powell’s last until the press conference following the Fed’s meeting on July 30-31have modified expectations of rate cuts.
Markets now anticipate 68 basis points of easing this year, with a September rate cut fully priced in, according to CME’s FedWatch tool. The dollar index, which measures the U.S. currency against six peers, stands at 104.3, near a one-month low of 104 hit on Monday..
Dollar: what the market is analyzing
“Despite leanings in favour of monetary easing, Powell remains in a data-dependent mode, justified after the Fed has burned its fingers with inflation racing back up in the first quarter following an expansionary pivot in late 2023,” comments Charu Chanana, head of FX strategy at Saxo.Markets may have to wait longer to confirm their hopes for a rate cut in September, with growth and jobs data on the radar, such as today’s retail sales.“.
U.S. retail sales for June, due later in the day, are expected to show a 0.3% month-on-month decline. The euro is at $1.0893, just below the four-month high reached on Monday, having recouped all of the losses of recent weeks due to uncertainty over the French elections.
The focus is on Thursday’s European Central Bank policy meeting, where it is expected to hold rates, but there will be interest in comments from ECB President Christine Lagarde to determine the timing of the next rate cut. Markets are pricing in 48 basis point cuts this year.Japanese authorities are maintaining their warnings against a fall in the yen, with Chief Cabinet Secretary Yoshimasa Hayashi saying they are prepared to take all possible measures in the currency market.
Traders suspect that Tokyo intervened in the market last week to support the Japanese currency following a softer-than-expected U.S. inflation report. Bank of Japan data show that authorities may have spent as much as 3.57 trillion yen to prop up the yen.
Markets will be looking to fresh money market data to see if Tokyo intervened on Friday as well. The yen is down 0.4% at 158.64 per dollar, with the other crosses weakening. “The yen was already due to pull back anyway,” said Kyle Rodda, financial markets analyst at Capital.com. “After last week’s weak US data and moves to anticipate a Fed cut in September, as well as the Finance Ministry intervention, the yen was quite hot. It’s cooling off a bit now.”
Before last week, Tokyo spent about 9.8 trillion yen ($61 billion) protecting the yen in late April and early May, official data showed, but the unit has continued to fall, hitting its lowest since December 1986 at 161.96 on July 3. In cryptocurrencies, bitcoin is up 1% and hovering just below $65,000, near its highest level in a month. Ether is up 1% at $3,466, hitting a two-week high.
Among other currencies, the Australian dollar fell 0.27% to US$0.6741, below the six-month high reached last week.The New Zealand dollar fell 0.17% to $0.6064, hitting a two-week low ahead of Wednesday’s inflation data.
Source: Ambito
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