Dollar Expected to Rebound as Fed Bets Cool

30 Aug 2024 , 10:11 AM

The dollar traded around a one-week high against key peers on Friday, on course to end a five-week losing streak, after strong economic data reduced expectations of aggressive Federal Reserve interest rate reduction.

The euro remained at a two-week low against the dollar as falling inflation in Germany and Spain bolstered the case for European Central Bank easing.

After dropping on Thursday, the yen remained at the carefully watched 145 per dollar level, as the greenback following an increase in US Treasury yields.

The Japanese yen mostly ignored data on Friday showing core consumer prices in Tokyo rising at a faster-than-expected 2.4% in August, once again above the Bank of Japan’s 2% target, but a measure that excludes energy costs grew by only 1.6%.

Overnight, US data indicated that gross domestic product (GDP) increased at a 3.0% annualised rate in the second quarter, up from the 2.8% rate recorded last month. Reuters polled economists, and they predicted that GDP will not be revised.

Traders now support a quarter-point Fed rate decrease on September 18, with only 34% odds of a 50-basis point (bp) cut, down from 38% the day before, according to the CME Group’s FedWatch Tool.

The US dollar index, which measures the currency against a basket of six major rivals, was little changed at 101.34, having risen 0.36% on Thursday and to its highest level since August 22 at 101.58.

It is expected to gain 0.66% this week, marking its highest week since the beginning of August and breaking a five-week losing skid. However, it is expected to fall 2.6% in August, the most since November.

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