The U.S. dollar rose in early European trade on Wednesday, but remains close to seven-month lows as minutes of the Federal Reserve’s last meeting and possible reviews of payroll data are set to signal a September rate cut.
At 16:00 Riyadh time, the US dollar records 101.279 against a basket of foreign currencies, with a sideways movement in today’s trading after an early rise that did not succeed in maintaining it. The dollar index fell 0.5% or more in each of the previous three sessions.
Dollar weakens ahead of Fed minutes and payroll review
The U.S. dollar came under pressure, falling more than 2% over the past month, with U.S. bond yields falling to their lowest levels in more than a year after surprisingly weak monthly jobs figures raised recession fears.
This puts the revised payroll data, due later on Wednesday, in focus, with the prospect of a major downward revision weighing heavily on the dollar.
Minutes for the Fed’s late July meeting are also scheduled to be released later in the session, and traders will look for the prospects of the Fed cutting interest rates at its mid-September meeting.
The Fed has maintained its benchmark overnight interest rate in the current range of 5.25%-5.50% since last July.
Nomura expects the US dollar’s weakness to continue, as this forecast is driven by several macroeconomic factors, positioning adjustments and portfolio reallocations, which are expected to put pressure on the dollar in the coming months.
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Euro on its way to a strong month
In Europe, EUR/USD traded down 0.1% to 1.1120, moving away from the high of 1.1133, the highest since December 28.
The single currency is up more than 2% this month and is on track for its strongest monthly performance since November.
Nomura expects to narrow the growth differential between the US and Europe, which has been an important factor in the dollar’s strength.
“This is likely to support the EUR/USD pair, while our discussions with market participants concluded that there is a risk of a bullish EUR/USD pair if the spot price breaks through the recent highs of 1.1139 in December 2023 (and 1.1276 in July 2023; most recently at 1.1077),” Nomura analysts said.
The US dollar traded down 0.1% to 1.3020, slightly below the previous session’s high of 1.3054, a level last seen in July last year.
Data released earlier on Wednesday showed that British government borrowing rose more than expected in July, with net public sector borrowing reaching £3.1bn last month, up £1.8bn from a year ago and the highest borrowing in July since 2021.
Traders are divided over the chances of the Bank of England making another rate cut in mid-September September, after it began its rate cut campaign earlier this month in a decision soon.
Yen gets rid of some gains
In Asia, USD/JPY rose 0.5% to 146.01, but remained well below its high of 160 earlier this year.
The USD/JPY pair fell to 141 earlier in August August as the yen swapping trade was largely eliminated due to hawkish signals from the Japan Bank. Japan’s interest rate hikes are expected to support the yen and undermine the yen’s mobile trade in the coming months.
USD/CNY The Japanese yen was trading largely flat at 7.1326, after the slightly stronger midpoint was fixed by the People’s Bank. The central bank also left its key loan interest rate unchanged on Tuesday.
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