U.S. Dollar Edged Down Last Week As Recession Fears Ebbed

(RTTNews) - The week ended August 9 witnessed the Dollar stabilize after a massive market turbulence triggered by fears of a recession in the U.S. Comments from Fed officials that downplayed possibility of a recessionary freefall as well as better-than-expected economic data from the U.S. supported the Dollar.

The growing assessment that neither an inter-meeting rate cut, nor a larger-than-expected rate cut was warranted by the Fed in the wake of the market meltdown also boosted the Dollar's prospects over the course of the week.

The Dollar Index, which measures the U.S. Dollar's strength against a basket of 6 currencies edged down 0.07 percent during the week ended August 9. Though the greenback gained against the British pound, the Japanese yen and the Swiss franc, the rally did not suffice to overcome the strength of the euro, the Canadian dollar and the Swedish krona. Consequently, the 6-currency Dollar Index slipped to 103.14 from 103.21 a week earlier.

The weekly trading range was much wider, as the Index which had fallen to a multi-month low of 102.16 on August 5, rebounded to a high of 103.55 by August 8. Strong economic data aided the Dollar's recovery and rebound in a week that saw whipsawing prices across financial markets.

Data released on August 5 had shown the ISM Services PMI in the U.S. rising to 51.4 in July from a multi-month low of 48.8 in June. The reading which surpassed market expectations of 51 indicated a moderate rebound in services activity, assuaging fears of a sharp slowdown in the world's largest economy.

Labor Department's data released on Thursday showed the number of people claiming unemployment benefits in the U.S. declining to 230 thousand during the week ended August 3 from 250 thousand a week earlier and market expectations of 240 thousand. The weekly data came as a much-needed relief to markets rattled by the monthly job market update on the previous Friday that revealed a decline in the indicators for hiring and earning, as well as an unexpected jump in the unemployment rate.

The euro edged up 0.07 percent against the greenback during the week ended August 9. The EUR/USD pair closed trading at 1.0916 on August 9, rising from 1.0908 a week earlier. The pair touched a seven-month high of 1.1008 on August 5 and a weekly low of 1.0882 on August 8. Sticky inflation data from the region that had the potential to halt the ECB's easing stance dominated sentiment despite the week's data showing Services PMI declining on expected lines and Retail Sales declining more than expected.

The sterling dropped more than 0.30 percent against the greenback during the week as the Bank of England's recent rate cut dominated market mood. The GBP/USD pair which had closed at 1.2798 on August 2 dropped to 1.2759 by August 9. Amidst Monday's market meltdown and the dramatic rebound, the pair traded between 1.2818 touched on Monday and 1.2664 recorded on Thursday.

The yen edged down against the U.S. dollar during the week ended August 9. The USD/JPY pair increased to 146.61 from 146.54 a week earlier amidst comments from Bank of Japan that calmed markets rattled by an unwinding in the carry trade and a sudden focus on recession fears. Bank of Japan officials downplayed the likelihood of near-term rate hikes in the volatile market scenario causing the pair to oscillate between the seven-month low of 141.68 recorded on Monday and 147.90 recorded on Wednesday.

A hawkish Reserve Bank of Australia helped lift the AUD/USD pair close to 1 percent during the week ended August 9. The RBA governor warned during the week that it would not hesitate to raise interest rates again to combat inflation. The starkly divergent monetary policy outlook helped the pair surge to 0.6572 from 0.6509 a week earlier. The pair traded between 0.6348 on Monday and 0.6607 on Friday.

Sentiment remains nervy as markets wait for the U.S. CPI data for July due on Wednesday morning. Headline annual inflation is seen declining to 2.9 percent from 3 percent in June. The core component thereof is seen falling to 3.2 percent from 3.3 percent previously. Month-on-month inflation as well as its core component are both seen at 0.2 percent.

Amidst anxiety ahead of the inflation update, the Dollar Index has edged up to 103.25 from the level of 103.14 recorded at Friday's close. The EUR/USD pair has edged up to 1.0918 from 1.0916 on Friday. The GBP/USD pair is at 1.2792, rising sharply from 1.2759 recorded at the end of the previous week. The USD/JPY pair is at 147.80, jumping from Friday's close of 146.61. The AUD/USD pair has also strengthened to 0.6601 versus 0.6572 on August 9.