Sep 27 2024: The U.S. dollar weakened in volatile trading on Thursday after an initial boost from strong U.S. economic data waned, while the Swiss franc gained following a 25 basis point rate cut by the Swiss National Bank (SNB).
Earlier in the session, the dollar had pared some of its losses after reports showed U.S. weekly jobless claims dropped by 4,000 to a four-month low of 218,000, below the forecast of 225,000 from economists polled by Reuters.
Other data revealed stronger-than-expected corporate profit growth in the second quarter and an unrevised 3% rise in gross domestic product (GDP). A gauge of new orders for U.S.-manufactured capital goods also saw an unexpected increase in August, although business spending on equipment appeared to slow in the third quarter.
“We’re seeing a disconnect between the Fed cutting rates and an economy that’s growing at 3% or more, leaving the market uncertain,” said Joseph Trevisani, senior analyst at FXStreet in New York. “The thinking is, why not cut rates? It won’t hurt the economy, and it might even improve things as the neutral rate is likely lower than current levels.”
The dollar index, which tracks the greenback against six major currencies, fell 0.42% to 100.52, its sixth decline in seven sessions, after briefly rising to 100.95 earlier in the day. The euro gained 0.41% to $1.1178.
The Federal Reserve has recently shifted its focus away from inflation and towards sustaining labor market strength, having delivered a larger-than-expected 50 basis point rate cut last week. Markets are now fully pricing in a 25 basis point cut at the Fed’s upcoming Nov. 6-7 meeting, with a 51.3% chance of another half-point cut, according to the CME Group’s FedWatch Tool.
Swiss Franc Gains on Rate Cut
The dollar fell 0.55% to 0.846 against the Swiss franc after the Swiss National Bank cut interest rates by 25 basis points, following the lead of the Federal Reserve and the European Central Bank (ECB). The SNB signaled the possibility of more rate cuts as inflation in Switzerland cools sharply, though some analysts were expecting a larger cut after the Fed’s move.
Goldman Sachs analysts noted that the SNB’s decision was driven by reduced inflationary pressures, partly due to the strengthening franc. They expect an additional 25-basis-point cut at the SNB’s December meeting, given the bank’s dovish stance and revised inflation forecasts.
Meanwhile, several U.S. central bank officials, including Fed Chair Jerome Powell, spoke on Thursday but refrained from making comments on monetary policy. U.S. Treasury Secretary Janet Yellen remarked that labor market and inflation data indicate the U.S. economy is on track for a “soft landing,” but reducing housing costs remains a critical step in controlling inflation.
Other Currency Movements
The Japanese yen strengthened slightly, rising 0.1% to 144.6 per dollar. Minutes from the Bank of Japan’s July meeting highlighted divisions among policymakers over how quickly interest rates should be raised, underscoring uncertainty about the timing of future rate hikes.
The British pound rose 0.71% to $1.3417, marking its largest daily percentage gain in a month.
