Dollar falls as traders bet on more rate cuts
The dollar dropped on Wednesday and the euro hit a one-week high as traders bet that the Federal Reserve will cut rates more times than previously expected this year, following weaker than expected jobs data for July.
With no major U.S. economic releases on Wednesday traders continued to focus on the implications from Friday's jobs report.
U.S. employment growth was weaker than expected in July while the nonfarm payrolls count for the prior two months was revised down by a massive 258,000 jobs, suggesting a sharp deterioration in labor market conditions.
The greenback fell sharply after the report, paring gains from what had been a relatively strong July for the currency, the first month this year in which the dollar index posted a gain.
Fed funds futures traders are now pricing in a 95% probability of a 25 basis point cut at the Fed’s September meeting, up from 48% a week ago, according to the CME Group’s FedWatch Tool. In total, traders see 62 basis points in cuts this year.
The Fed may need to cut interest rates in the near term in response to a slowing U.S. economy, even though it remains unclear whether tariffs will continue to push inflation higher, Minneapolis Fed President Neel Kashkari said on Wednesday.
Trump issued an executive order on Wednesday imposing an additional 25% tariff on goods from India, saying the country directly or indirectly imported Russian oil, adding to 25% tariffs already announced.
The dollar index was last down 0.56% on the day at 98.18, the lowest since July 28. It posted a 1.35% drop on Friday, the largest one day fall since April.
The dollar spiked briefly in late morning New York time in line with Treasury yields, which may have been due to traders placing large futures bets before a 10-year Treasury auction.
The greenback extended losses after the Treasury Department saw soft demand for the $42 billion sale of the 10-year notes.
The euro rose 0.76% to $1.1662, the highest since July 28. It recorded a 1.48% gain on Friday.
Investors are also focused on Trump’s expected nomination to fill a coming vacancy on the Federal Reserve's Board of Governors and the candidates for the next Fed Chair.
The dollar fell 0.35% to 147.09 yen . It dropped 2.24% against the Japanese currency on Friday, the largest daily decline since January 2023.
Taro Kono, touted as a candidate to become the next prime minister, said that Japan must balance its budget and push the central bank to raise interest rates to alleviate concern over the country's finances.
Ruling party heavyweight Ken Saito, meanwhile, told Reuters that the Bank of Japan must be cautious about raising interest rates given the expected hit from U.S. tariffs on the fragile economy.
Sterling rose 0.47% to $1.3362 before the Bank of England on Thursday is expected to cut interest rates by 25 basis points.
Against the Swiss franc , the dollar weakened 0.17% to 0.806. Swiss President Karin Keller-Sutter said she had a "very good meeting" with U.S. Secretary of State Marco Rubio on Wednesday as Switzerland strives for a deal to avert a crippling 39% tariff on its exports to the United States.
In cryptocurrencies, bitcoin gained 1.63% to $115,516.
Source : Reuters
