Dollar Set for Steepest Weekly Drop in a Month Before Fed
The dollar is on track for its sharpest weekly drop in more than a month ahead of a Federal Reserve meeting that’s expected to launch a series of interest-rate cuts.
The Bloomberg Spot Dollar Index is down 0.2% in the week, the most since August. Lackluster US labor market data have cemented bets for 75 basis points of rate cuts by year-end, even as relatively sticky inflation suggests the greenback won’t face a sudden slump and options traders remain split on the dollar’s next leg.
“The labor market is not falling from a cliff but definitely moderating,” Monica Defend, head of Amundi SA’s Investment Institute, told Bloomberg Television Friday. “We confirm the idea of three Fed cuts this year and more to come next year.”
Markets have largely baked in the prospect of a quarter-point rate cut next week from the Fed. At the same time, they’ll be scouring the decision and comments for evidence of concern about lingering price pressures. On Friday, a reading of US consumer sentiment fell to its weakest mark since May but long-term inflation expectations rose for a second month.
“The Fed’s interest rate cuts will be damaging to the US dollar,” Michael Pfister, FX strategist at Commerzbank, wrote in a note. Still, persistent inflation means its downward trend will be “a slow bleed instead of a big bang,” he said.
Commerzbank is the most bearish on the dollar in a Bloomberg poll, predicting aggressive rate cuts will help weaken it to $1.22 versus the euro by year-end. That implies a retreat of about 4% from Friday’s levels.
Across the Group of 10, the euro is set to close the week little changed versus the greenback and last traded around the $1.1720 mark. The Canadian dollar underperformed peers on the week ahead of the Bank of Canada’s own meeting next week, while the yen remains mired in politics amid Japan’s leadership race. That has left some investors rotating away from the dollar into other assets instead of other currencies.
“We’ve been really expressing our bearish dollar view in the precious metals space and in gold,” Sam Zief, head of global FX strategy at JPMorgan Private Bank, said on Bloomberg Television.
Source: Bloomberg
