Dollar Tumbles Amidst Fed's Rate Cut Hints, Weak Jobs Data

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Dollar Tumbles Amidst Fed's Rate Cut Hints, Weak Jobs Data

(RTTNews) - Firm hints of a Fed rate cut as early as September and weaker-than-expected jobs data from the U.S. exacerbated the Dollar's tumble during the week ended August 2. Despite an escalation in geopolitical tensions in the Middle East, the U.S. dollar slipped against the Japanese Yen, the euro, the Swedish Krona and the Swiss franc. It however firmed up against the British pound, the Australian dollar and the Canadian Dollar. The six-currency Dollar Index also shed more than a percent.

The Dollar Index which measures the Dollar's strength against a basket of 6 currencies slipped 1.06 percent during the week spanning July 29 to August 2.

The Bank of Japan on Wednesday announced its decision to raise key short-term interest rates to around 0.25 percent from the prior range of 0 to 0.1 percent that it had set in March. The Japanese central bank also announced a tapering in its bond-buying program.

The Federal Reserve's monetary policy review followed, with a widely expected status quo on rates. It acknowledged the progress toward the 2 percent inflation goal and also hinted at rate cuts as early as September.

The job market update by the U.S. Bureau of Labor Statistics that followed on Friday revealed a decline in the indicators for hiring and earning, as well as an unexpected jump in the unemployment rate. The addition to non-farm payrolls was 114 thousand in the month of July, versus 179 thousand in the previous month and market expectations of 175 thousand. The unemployment rate which was expected to remain steady at 4.1 percent unexpectedly jumped to 4.3 percent, the highest since October 2021. Average hourly earnings (month-on-month) which was expected to be steady at 0.3 percent unexpectedly declined to 0.2 percent. Average hourly earnings (year-on-year) declined to 3.6 percent, from 3.8 percent in June while markets had expected a decline to 3.7 percent only.

Though anxiety ahead of the Federal Reserve's monetary policy announcement had lifted the Index to a weekly high of 104.80 on Tuesday, the yen's strength following Bank of Japan's rate hike, firm rate cut hints by the Fed and the disappointing U.S. labor market update dragged it down all the way to 103.13 by Friday. The Dollar Index which stood at 104.32 on July 26 eventually closed at 103.21 on August 2.

Amidst the dollar's weakness triggered by rate cut hopes, the euro rallied close to half a percent against the greenback. The euro's strength was attributed to data released during the week which showed a higher-than-expected GDP reading for the second quarter and an unexpected spike in inflation in the month of July. From the level of 1.0857 on July 26, the EUR/USD pair increased to 1.0908 by August 2. The pair oscillated between the weekly low of 1.0776 recorded on Thursday and the weekly high of 1.0927 touched on Friday.

The first rate cut by the Bank of England in over four years dampened the pound, causing the GBP/USD pair to shed 0.57 percent during the week ended August 2. The pound sterling which was at $1.2872 on July 26 declined to $1.2798 in a week's time. The weekly trading range was between $1.2890 touched on Monday and $1.2706 on Friday. The Bank of England had on Thursday lowered its Bank rate by 25 basis points to 5 percent.

The AUD/USD pair recorded a slippage of 0.60 percent during the week ended August 2. The pair, which had closed trading at 0.6548 on July 26 dropped to 0.6509 in a week's time amidst data showing inflation moderating on expected lines that diminished the prospect of a rate hike by the Reserve Bank of Australia. The weekly trading for the AUD/USD pair ranged between 0.6569 on Monday and 0.6478 on Wednesday. The hawkish tone in the Bank of Japan's recent monetary policy pronouncements, the unexpected rate hike and the proposed tapering in bond purchases caused the Japanese yen to skyrocket during the week ended August 2. The USD/JPY pair plunged 4.7 percent as it declined from the level of 153.72 on July 26 to the level of 146.54 on August 2. The USD/JPY pair ranged between 155.23 recorded on Tuesday and 146.41 touched on Friday.

The unabated turbulence in stock markets on Monday amidst concerns over the health of the U.S. economy has dragged down the Dollar Index 0.61 percent to 102.57.

The rate hike by Bank of Japan, the unwinding of yen carry trades, and the Nikkei's massive plunge on Monday dominated currency market sentiment as well. Amidst the yen's renewed strength, the USD/JPY pair has tumbled 2.2 percent on Monday to 143.31.

Amidst the mayhem in world markets, the EUR/USD pair has jumped 0.57 percent to 1.0970. The sterling has slipped 0.23 percent to $1.2769. The AUD/ USD pair has also shed 0.22 percent on Monday to trade at 0.6495.

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