US Dollar Declines to Lowest Level Since April

4 Jun 2024 , 09:01 AM

Tuesday saw the dollar weaken against the euro and sterling to its lowest level since April as evidence of the U.S. economy slowing down strengthened the case for earlier Federal Reserve interest rate cuts.

Following the data indicating a second consecutive month of slowing manufacturing activity and an unexpected decrease in construction spending, the US dollar sank to a two-week low against the yen.

Fed funds futures raised the likelihood of a rate decrease in September to approximately 59.1% in response to the data, according to LSEG’s rate probability tool.

This contrasts with chances of over 55% on Friday, when statistics indicated that consumer price pressures had stabilised, contributing to the dollar’s first monthly decline of the year in May. Earlier in the week, the odds were marginally less than 50%.

The monthly payroll data for the United States is a crucial test that is due on Friday.

As of right now, the Fed’s November meeting is fully priced to raise rates by a quarter point, with a total tightening of 41 basis points anticipated by year’s end.

Consumer price data is also due on June 12, which also happens to be the end of the Fed’s next policy meeting. Analysts and traders see little chance of a policy shift at that meeting, although policymakers will revise their forecasts for the economy and interest rates.

The dollar index, which compares the value of the currency to the yen, euro, sterling, and three other important rivals, fell 0.05% to 103.99, the lowest since April 9.

At $1.09155, a level last hit on March 21, the euro gained 0.11%.

The European Central Bank has hinted that rate-cutters will act at their meeting on Thursday, but given statistics from last week showed inflation to have picked up, authorities might be hesitant to act at this time.

Rising 0.05% to $1.2814, sterling saw its highest level since March 14.

The dollar did, however, gain 0.14% to 156.255 yen, eroding from its overnight bottom of 155.95—the lowest level since May 21.

Later this month, the Bank of England and the Bank of Japan will also conduct potentially significant policy meetings.

In other news, the New Zealand dollar experienced its first increase since March 8 and reached $0.6194. The Australian dollar was unchanged at $0.66895, staying near the overnight high of $0.6695, which was reached two weeks ago.

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