The U.S. dollar languished near its lowest levels in more than a year against both the euro and sterling on Thursday, as dovish signals from the Federal Reserve and emerging signs of weakness in the U.S. job market intensified expectations of interest rate cuts.
The greenback dropped below the closely-watched 145 yen threshold, pressured by falling U.S. Treasury yields, as investors braced for the release of weekly jobless claims data and Fed Chair Jerome Powell’s highly anticipated speech at the annual Jackson Hole symposium on Friday.
The dollar index, which gauges the currency’s performance against six major peers including the euro, sterling, and yen, remained virtually unchanged at 101.14 as of 0015 GMT. It briefly dipped to 100.92 overnight, marking its lowest point this year.
The euro held steady at $1.1154 after reaching $1.1130 on Wednesday, a level last seen in July of the previous year. Similarly, sterling maintained its position at $1.3092, after hitting $1.31195 in the prior session, also a high last observed in July 2023.
Minutes from the Federal Reserve’s July 30-31 meeting, released on Wednesday, revealed that officials were strongly inclined towards an interest rate cut at their upcoming September policy meeting. Some members even favored an immediate reduction in borrowing costs, reflecting mounting concerns over the U.S. economy’s momentum.
Adding to the dovish sentiment, a Labor Department report revealed that employers had added significantly fewer jobs than previously reported in the year leading up to March. This data further fueled market speculation about the likelihood of more aggressive monetary easing.
According to the CME Group’s FedWatch Tool, traders now see a 38% chance of a 50 basis point cut at the Fed’s September 17-18 meeting, up from 33% a day earlier, and a 62% probability of a 25 basis point reduction.
Markets are keenly awaiting Powell’s speech in Jackson Hole, hoping for any insights into the size of the anticipated rate cut next month and the potential trajectory of future cuts.
“We favor a 25 basis point cut because the U.S. economy is still in good shape—50 basis point cuts are usually reserved for situations where the economic outlook is under threat,” commented Kristina Clifton, a senior economist and currency strategist at Commonwealth Bank of Australia.
The dollar weakened further, slipping 0.11% to 145.09 yen, after earlier dipping as low as 144.86 yen. Traders are also looking for more clarity on Japanese monetary policy, following mixed signals from Bank of Japan Governor Kazuo Ueda and Deputy Governor Shinichi Uchida in recent weeks.
Ueda is scheduled to testify on Friday in a special session of parliament, where the Bank of Japan’s unexpected decision to raise rates at the end of last month is expected to come under scrutiny.
Elsewhere, the Australian dollar ticked up 0.09% to $0.6750, remaining close to Wednesday’s five-week high of $0.6761, reflecting broader trends in the currency markets as global investors adjust their positions ahead of key central bank announcements.
As the Jackson Hole symposium looms, all eyes are on Powell and other central bank leaders, as their comments could set the tone for global financial markets in the coming weeks.