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The U.S. dollar struggled to gain traction against its peers on Monday, trading within a tight range as investors awaited fresh catalysts for the week that could provide insights into U.S. interest rate outlooks.
This week’s main drivers for currency movement will likely be the minutes from the Federal Reserve’s July policy meeting and a speech by Chair Jerome Powell at Jackson Hole. Additionally, inflation data from Canada and Japan, alongside Purchasing Managers’ Index readings from the U.S., euro zone, and UK, will be closely watched.
The euro was last at $1.1026, while sterling hit a one-month high of $1.2950 in an otherwise muted start to the Asian trading session. Expectations of an imminent start to the Fed’s easing cycle pressured the dollar.
The greenback fell 0.06% to 102.40 against a basket of currencies.
Traders have fully priced in a 25-basis-point rate cut in September, with a 24.5% chance of a 50 bp move. Futures indicate over 90 bps worth of easing by year-end. “Markets will be laser-focused on Powell’s speech at the end of this week. It’s a great opportunity for him to either endorse or push back market pricing,” said Carol Kong, currency strategist at Commonwealth Bank of Australia (CBA).
“I think he’ll at least greenlight a rate cut at the September meeting. If anything, he’ll try to retain optionality since more data will come in before the next meeting.”
Financial markets experienced a turbulent start to August after a series of softer-than-expected U.S. economic data, particularly a weak July jobs report, triggered severe volatility. Investors feared a recession in the world’s largest economy and criticized the Fed for being slow in easing rates.
With those worries now easing, traditional safe-haven assets like the yen, which had received a boost from a flight to safety, have given up some early August gains. The Japanese currency last traded 0.2% lower at 147.93 per dollar, falling about 4% from a seven-month high at the start of the month.
Japanese investment data on Friday confirmed that after some turmoil, investors are betting on the Bank of Japan going slow on rate rises and on the yen staying cheap.
“Given that financial markets have calmed and volatility has eased, I think dollar/yen can recover more, perhaps to 150, as volatility continues to decrease,” said CBA’s Kong.
The New Zealand dollar rose 0.16% to $0.6062, while the Australian dollar hit a one-month high of $0.66865.
The Aussie has drawn support from a still-hawkish Reserve Bank of Australia, with Governor Michele Bullock recently stating it was premature to consider rate cuts. Her comments came just days after the Reserve Bank of New Zealand delivered its first rate cut in over four years.
