Rate Cut Hopes Drag The Dollar Down

(RTTNews) - The U.S. dollar declined against major currencies during the week ended August 8 amidst weak economic data that renewed hopes of a larger-than expected and higher-than-expected monetary policy easing by the Federal Reserve. Markets also factored in the recent developments in the Federal Reserve including President Trump's nominations to the Fed.

During the past week, the U.S. Dollar inter alia slipped against the euro, the British pound, the Australian dollar, the Canadian dollar and the Swedish krona but held its ground against the Japanese yen and the Swiss franc. The Dollar Index which measures the Dollar's strength against a basket of 6 currencies also dropped close to a percent during the past week.

From the level of 99.14 on August 1, the Dollar Index plunged 0.97 percent in a week's time. The Index which had touched a weekly high of 99.07 on Tuesday dropped to the weekly low of 97.94 by Thursday. The Index eventually recovered and closed the week's trading at 98.18.

The greenback had opened the past week on a subdued note in the backdrop of weak labor market data released from the U.S. at the end of the previous week. Subsequently, data released on Tuesday had showed the ISM Services PMI unexpectedly declining to 50.1 in July, from 50.8 in June and missing market expectations of a level of 51.5. The weak economic data supported rate cut expectations, with the CME FedWatch tool, revealing on Friday an 88-percent likelihood of a Fed rate cut in September, and a 96-percent probability of a rate cut in October.

Amidst the dollar's weakness triggered by hopes of easing by the Federal Reserve, the EUR/USD pair rallied 0.47 percent during the week ended August 8. From the weekly low of 1.1527 touched on Tuesday, the pair jumped to a high of 1.1700 on Thursday. The pair eventually closed at 1.1640, versus 1.1586 a week earlier.

The British pound also surged emphatically against the greenback during the week ended August 8 amidst Bank of England's narrow vote for a rate cut as well as a hawkish forward guidance. The GBP/USD pair which had closed at 1.3280 on August 1 gained 1.29 percent during the week ended August 8 to close at 1.3451. The weekly trading range was wider, between a low of 1.3252 recorded on Monday and a high of 1.3460 recorded on Friday.

The Australian Dollar jumped 0.76 percent against the U.S. Dollar during the past week. Amidst a bigger-than-expected trade balance and the greenback's payrolls-led weakness, the pair rose from the level of 0.6477 recorded on August 1 to close the week ended August 8 at 0.6526. During the week, the pair oscillated between a low of 0.6449 recorded on Tuesday and the high of 0.6543 recorded on Thursday.

The U.S. Dollar rallied mildly against the Japanese Yen during the week ended August 8. The USD/JPY pair closed the week at 147.73 versus 147.38 a week earlier, registering a gain of 0.24 percent. The pair ranged between the high of 148.10 recorded on Monday and the low of 146.62 recorded on Tuesday. The yen whipsawed amidst Summary of Opinions of the recent meeting of Bank of Japan showing the central bank debating the likelihood of resuming interest rate increases.

Ahead of the anticipated increase in consumer price inflation readings from the U.S. on Tuesday, the 6-currency Dollar Index has firmed up. It is currently trading at 98.58 versus 98.18 at close on Friday. The looming U.S.-China tariff deadline also swayed sentiment.

Amidst the Dollar's strengthening, the EUR/USD pair has declined to 1.1599 from 1.1640 on Friday. The GBP/USD pair has also dropped to 1.3409 from 1.3451 on Friday. Ahead of Reserve Bank of Australia's widely expected quarter-point rate cut on Tuesday in response to cooling inflation and softening labor market, the AUD/USD pair has slipped to 0.6507 from 0.6526 at close on Friday. The USD/JPY pair has rallied to 148.00 from the level of 147.73 recorded at the end of the previous week.