The U.S. dollar showed weakness today, with the euro nearing eight-month highs after recent U.S. inflation data suggested the Federal Reserve could ease monetary policy. Falling inflation has fueled speculation about a rate cut, possibly as early as next month.
In contrast, the Japanese yen settled at 147.315 against the dollar, supported by the Japanese economy showing surprising annual growth of 3.1% in the second quarter driven by strong consumer spending. This performance maintains the potential for higher interest rates in Japan in the near term.
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However, the Japanese yen remains well above its 38-year low of 161.96 hit in early July, having recovered since the Tokyo interventions and the Japan Bank raised interest rates at the end of July.
In the US, consumer price index (CPI) data released on Wednesday matched expectations and indicated that the annual inflation rate fell below 3% for the first time since early 2021. This, coupled with the modest rise in producer prices in July, suggests that inflation may be trending lower. Despite these signals, market participants have tempered their expectations for strong rate cuts by the Federal Reserve.
Portfolio manager Josh Chastant of GuideStone Funds commented on the implications for the CPI and PPI data: “Much will depend on the tone of the minutes and the press conference that will take place after the meeting, but markets may be slightly disappointed if we get a cut of only 25 basis points.” Currently, markets point to a 64% probability of a 25 basis point rate cut in September/September, with a 36% probability of a 50-point cut. Basis, according to CME FedWatch. The total cuts are expected to reach 100 basis points from the Federal Reserve this year.
Chief economist Mansour Mohieldin of Singapore Bank shared his forecast for the Fed’s actions, predicting “calculated moves of 25 basis points in favor of risky assets,” and predicting cuts in September and December, with a possible further cut in November if the U.S. labor market shows further weakness.
Attention is now turning to the expected U.S. retail sales data later in the day. The euro remained flat in early trade, near recent highs, while sterling showed slight strength after a weaker-than-expected reading of British consumer price inflation that could lead to further interest rate cuts by the Bank of England.
The dollar index, which compares the U.S. dollar to a basket of six currencies, was at 102.59, not far from an eight-month low reached last week. It is on track for its fourth consecutive week of decline, a series of declines last seen in March-April 2023.
The New Zealand dollar saw a slight rise after a significant drop in the previous session when the Reserve Bank of New Zealand cut its cash interest rate. The Australian dollar also rose after employment figures beat expectations, although the unemployment rate rose slightly, which could support the RBA’s stance against this year’s rate cut.
Reuters contributed to this article.
This article was translated with the help of an artificial intelligence program after an editor’s review. For more details please refer to Banha Terms and Conditions
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