Aug 23 2024: The U.S. dollar edged lower in early European trading on Friday, as its recent recovery from seven-month lows stalled, with market participants eagerly awaiting Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole symposium.
As of 04:30 ET (09:30 GMT), the Dollar Index, which measures the greenback against six major currencies, slipped by 0.1% to 101.245, hovering near its lowest levels since January 2.
Dollar Weakens Ahead of Powell’s Speech
Despite a slight rebound earlier in the week, the dollar has registered a roughly 1% decline for the week, marking its fifth consecutive losing week. This downturn is driven by concerns about a slowing U.S. economy and expectations that the Federal Reserve may soon begin cutting interest rates.
All eyes are on Powell’s address at the Jackson Hole Symposium later on Friday, where he is expected to offer more insights on the Fed’s future rate policies and the broader economic outlook.
Analysts at ING noted, “He will likely use this speech to prepare markets for a September rate cut, which is already priced in and has been anticipated based on July’s Fed minutes and recent comments from Fed officials. The key question is whether he will hint at a 50 basis point cut, either in September or later this year.”
According to the CME FedWatch tool, markets currently see nearly a 75% chance of the Fed cutting rates by 25 basis points in September, with a 50 basis point reduction becoming less likely.
Euro and Sterling Gain Amid Dollar Weakness
In Europe, the EUR/USD pair rose by 0.1% to 1.1123, close to the 13-month high it reached on Wednesday. A survey by the European Central Bank (ECB) revealed that Eurozone consumers’ inflation expectations for the next 12 months remained steady for the third consecutive month in July. This survey may be used by ECB policymakers to demonstrate public confidence in their ability to bring inflation down to the 2% target while cutting interest rates.
ECB policymaker Martins Kazaks suggested that the central bank could cut interest rates two more times this year, as inflation continues to decline as expected. Kazaks, who is also the governor of Latvia’s central bank, stated at the Jackson Hole Economic Symposium, “We are broadly aligned with our baseline projections, which support a gradual decrease in interest rates.”
Meanwhile, GBP/USD climbed 0.3% to 1.3129, just below the 13-month high it reached on Thursday following the release of strong economic activity data for August. The market is now pricing in more rate cuts from the Fed by year-end compared to the European Central Bank or the Bank of England.
Yen Strengthens as Ueda Signals Rate Hikes
In Asia, USD/JPY dropped 0.2% to 145.99, with the yen gaining strength after Bank of Japan Governor Kazuo Ueda indicated that short-term interest rates in Japan remain too low and should be raised to reach neutral levels. Ueda reiterated that the central bank would consider further rate hikes if inflation remains steady, boosting the yen, which has appreciated since the bank raised rates by 15 basis points in late July.
USD/CNY fell 0.1% to 7.1372, while AUD/USD and NZD/USD both rose by 0.4%, to 0.6732 and 0.6159, respectively.
