The dollar languished near its lowest point in over a year against the euro and sterling on Thursday, pressured by a dovish stance from the Federal Reserve and fresh evidence of U.S. labor market weakness. The currency dropped below the key 145 yen level after U.S. Treasury yields fell, with traders eyeing upcoming jobless claims data and Fed Chair Jerome Powell’s anticipated speech at the Jackson Hole symposium on Friday.
The dollar index, which tracks the currency against major peers including the euro, sterling, and yen, was steady at 101.19 but had dipped to 100.92 on Wednesday, its lowest level this year. The euro edged down to $1.1143 after hitting $1.11735 on Wednesday, a peak not seen since July 2023. Sterling fell to $1.3084 from its previous session high of $1.31195, also a level last recorded in July 2023.
Minutes from the Fed’s July meeting revealed a strong inclination among officials toward cutting interest rates, with some even favoring an immediate reduction. This sentiment is reflected in the current market pricing, which assigns a 38% chance to a 50 basis point cut at the Fed’s September meeting and a 62% likelihood of a 25 basis point cut, according to CME Group’s FedWatch Tool.
Fed Chair Powell’s keynote address at Jackson Hole is highly anticipated for clues on the potential size of a rate cut and the direction of future policy meetings. “Markets anticipate further downside for the USD as Fed easing approaches,” noted National Australia Bank strategists, who predict the euro may range between $1.10 and $1.15.
The dollar fell 0.11% to 145.095 yen, having earlier touched a low of 144.86 yen. Investors are awaiting clearer signals on Japanese monetary policy following mixed messages from Bank of Japan officials. Governor Kazuo Ueda’s recent hawkish comments, which led to a sharp decline in bearish yen positions and a sell-off in Japanese stocks, contrasted with Deputy Governor Shinichi Uchida’s more cautious remarks.
In other currency movements, Australia’s risk-sensitive dollar decreased 0.19% to $0.67315, retreating from a five-week high. China’s yuan was slightly stronger at 7.1292 per dollar in offshore markets but fell from Wednesday’s high of 7.1135.
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