Sep 23 2024: The U.S. dollar gained ground on Monday, recovering from last week’s one-year low, while weak economic data from Europe pressured the euro.
At 04:15 ET (08:15 GMT), the U.S. Dollar Index, which measures the dollar against six major currencies, climbed 0.5% to 100.925, moving away from its recent 12-month low.
Dollar Eyes PCE Data Release
The U.S. dollar has stabilized following last week’s Federal Reserve rate cut, with traders becoming more optimistic about the U.S. economy avoiding a recession. According to analysts at ING, investors seem confident in the “soft landing” narrative proposed by Fed Chair Jerome Powell, as key equity benchmarks continue to rise despite the 50 basis points rate cut.
Fed futures traders now expect a total of 75 basis points in rate cuts by the end of this year and nearly 200 basis points by the close of 2025. The focus this week shifts to Friday’s release of core personal consumption expenditures (PCE), the Fed’s preferred inflation measure. Analysts predict a 0.2% month-on-month increase, bringing the annual rate to 2.7%, while the headline index is expected to slow to 2.3%. ING notes that a lower-than-expected PCE reading could lead to a further decline in U.S. interest rates and the dollar.
Euro Weakened by Disappointing PMI Data
EUR/USD dropped 0.5% to 1.1111, as Germany’s business activity contracted in September at the fastest pace in seven months, hinting at a potential recession in Europe’s largest economy. The German flash composite PMI, compiled by S&P Global, fell to 47.2 from 48.4 in August, missing forecasts of 48.2.
The European Central Bank’s recent rate cuts, coupled with signs of economic slowdown, increase the likelihood of further easing in October. ING suggests that this weak economic backdrop will likely keep EUR/USD range-bound between 1.11 and 1.12, with risks skewed to the downside.
British Pound and Chinese Yuan
GBP/USD fell 0.4% to 1.3264, giving back some gains after reaching its highest level since March 2022 last week. The Bank of England held rates at 5% on Thursday, after initiating a 25-basis-point cut in August. ING analysts believe sterling positioning is less extreme than anticipated, suggesting there’s room for further correction.
Meanwhile, USD/CNY edged 0.1% higher to 7.0595 as the Chinese yuan weakened after the People’s Bank of China cut its 14-day repo rate to boost economic growth.
Japanese Yen Stable Amid Holiday
USD/JPY fell 0.1% to 143.72, with trading volumes muted due to a Japanese market holiday. The yen remains near its strongest levels in 2024, as the Bank of Japan held interest rates steady last week and signaled expectations for continued economic growth and inflation.
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