July 24 2024: The U.S. dollar edged higher on Wednesday, while the euro fell after the release of disappointing eurozone activity data, which pointed to further European Central Bank (ECB) rate cuts ahead.
At 05:25 ET (09:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, rose 0.1% to 104.232, extending an overnight rebound.
Dollar Benefits from Political Uncertainty
The dollar has benefited from volatility surrounding the U.S. political situation. Vice President Kamala Harris has garnered strong support from the Democratic Party after her endorsement as its presidential nominee by President Joe Biden. A Reuters/Ipsos poll also showed her slightly ahead of Republican nominee Donald Trump, though Trump remains the favorite to win November’s presidential election.
“The dollar losses from the softer June CPI report have now been erased in most USD crosses, with JPY, CHF, and GBP standing out as a few key winners,” said analysts at ING. “Looking at the bottom of the FX scorecard, we sense the Trump trade is still very much at play.”
The release of U.S. personal consumption expenditure inflation figures for June on Friday could quickly change foreign exchange sentiment.
Euro Lower After Weak Activity Data
In Europe, EUR/USD fell 0.2% to 1.0835 following the release of eurozone business activity data for July. Growth in eurozone business activity stalled, with the HCOB’s preliminary composite Purchasing Managers’ Index dropping to 50.1 from June’s 50.9, barely above the 50 mark that separates growth from contraction. The ECB kept interest rates on hold at 3.75% last week, but further signs of slowing regional growth point to additional rate cuts this year. Markets are pricing in nearly two ECB rate cuts for the rest of the year.
British Business Activity Rises
GBP/USD traded 0.1% lower at 1.2898, falling back from the 1.30 level it saw last week for the first time in a year. Data showed that British business activity picked up this month, bolstered by the fastest manufacturing growth in two years and the strongest inflow of new orders since April 2023. July’s S&P Global Flash Composite Purchasing Managers’ Index rose to 52.7 from June’s six-month low of 52.3.
Other Currency Movements
Elsewhere, USD/CAD rose 0.1% to 1.3796, near a three-month low for the Canadian dollar ahead of a Bank of Canada rate-setting meeting later in the session. Markets are pricing in an 84% chance of a 25 basis point rate cut, which would be the BoC’s second cut in as many months.
Yen Strengthens
In Asia, USD/JPY fell 0.5% to 154.81, with the pair falling to its lowest level since early June. The yen’s gains extended from last week, where the currency strengthened sharply amid suspected currency market intervention by the government. Positive purchasing managers index data also benefited the yen, with an unexpected contraction in manufacturing activity largely offset by a rebound in services activity. Focus is now on a Bank of Japan meeting next week, with recent inflation and PMI readings sparking increased speculation that the central bank will raise interest rates by 10 basis points.
Chinese Yuan
USD/CNY edged higher to 7.2773, close to highs last seen in November, as sentiment towards China remained dour amid persistent concerns over slowing economic growth in the country.
