Fed's dovish stance weighs on dollar

22 Aug 2024 , 10:05 AM

On Thursday, the dollar traded around its lowest level in more than a year against the euro and pound, as a dovish Federal Reserve and further evidence of weakness in the US labour market supported the case for interest rate reduction.

The dollar fell below the heavily watched 145-yen level as US Treasury yields fell, ahead of weekly jobless claims data later in the day and Fed Chair Jerome Powell’s highly anticipated speech at the central bank’s annual Jackson Hole symposium on Friday.

The dollar index, which compares the currency to the euro, sterling, yen, and three other major currencies, was slightly changed at 101.14 as of 0015 GMT. It dropped to 100.92 overnight for the first time this year.

The euro remained unchanged at $1.1154 after reaching $1.1130 on Wednesday for the first time since July of last year.

Sterling remained stable at $1.3092 after reaching $1.31195 in the previous session, a level last seen in July 2023.

According to the minutes of the July 30-31 meeting released on Wednesday, Fed members last month were firmly leaning towards an interest rate decrease at their September policy meeting, and several of them would have even been willing to reduce borrowing costs immediately.

Meanwhile, employers gained much fewer jobs than previously recorded in the year through March, according to a Labour Department data released on the same day.

According to the CME Group’s FedWatch Tool, traders now expect a 38% chance of a 50 basis point (bp) decrease at the Fed’s meeting on September 17-18, up from 33% the day before, and a 62% chance of a 25 bp reduction.

Powell delivers the keynote speech in Jackson Hole on Friday, and investors are looking for any signals on the anticipated size of a cut next month, as well as if borrowing costs will be reduced at subsequent policy meetings.

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