Aug 2 2024: The U.S. dollar fell in early European trade on Friday, pressured by weak economic data that heightened fears of a sharp slowdown in the world’s largest economy, potentially leading the Federal Reserve to loosen monetary policy aggressively.
As of 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.2% to 103.997. This continued its decline after falling 1.7% in July, marking its weakest monthly performance this year.
Dollar Weaker on Recession Fears
Overnight, data revealed that U.S. manufacturing activity contracted at the fastest pace in eight months in July. Additionally, a significant drop in a key employment gauge increased the likelihood of a U.S. recession.
This data also suggests downside risks to the key payrolls report expected later in the session.
Economists predict that the U.S. economy created 177,000 jobs in July, down from 206,000 in the previous month. The unemployment rate, which has risen each of the past three months, is expected to remain steady at 4.1%.
“We are bearish on the dollar today because evidence from employment components of the ISM and NFIB surveys suggests the risks are skewed towards a weaker payroll print. Once the equity turmoil and safe-haven demand abate, the macro drivers should drag the USD lower,” said analysts at ING in a note.
“The July jobs report will tell the Federal Reserve how much risks are getting skewed to the employment side of their mandate.”
Sterling Falls After BoE Rate Cut
In Europe, GBP/USD slipped 0.1% to 1.2734, having earlier fallen to 1.2708, the lowest since July 3, following the Bank of England’s decision to cut interest rates on Thursday.
BoE Governor Andrew Bailey led a 5-4 decision to reduce rates by a quarter-point to 5%, signaling a cautious approach moving forward and implying a steady pace of reductions.
EUR/USD rose 0.3% to 1.0820, bouncing back after hitting a three-week low of 1.0777 overnight.
Data released on Thursday showed that eurozone manufacturing sector activity remained in contraction territory in July, suggesting the European Central Bank will likely need to cut interest rates again this year to stimulate a slowing economy.
“The eurozone calendar is empty today, and we are entering a seasonally quiet period not just for data but also for ECB speakers. Given how poor eurozone activity indicators have been of late, it is probably a good thing for the euro,” said ING.
Yen Continues to Surge
In Asia, USD/JPY fell 0.3% to 148.84, with the yen continuing to surge after the BOJ hiked interest rates by 15 basis points and signaled more potential hikes in 2024, citing improving trends in the Japanese economy.
USD/CNY fell 0.5% to 7.2071, with the yuan slipping as weak PMI data fueled increased concerns over an economic slowdown.
