The US dollar steadied on Tuesday, while the euro tried to recover from its big losses in the previous session. At 04:00 ET (08:00 GMT), the dollar index, which measures the greenback against a basket of six other currencies, was little changed at 100.575. This level remains above its lowest point in 12 months.
Dollar steady after selloff: The US currency steadied after last week’s selloff triggered by the Federal Reserve’s interest rate cut.
The Fed kicked off its rate-cutting cycle with a massive 50 basis point cut. Now, attention is turning to what further cuts the central bank could make this year. Traders are betting there is a 53% chance that the Fed will cut rates by another half a point at its next meeting in November.
Michael Bowman in focus: Markets are likely to be watching closely for comments from Michelle Bowman, the lone dissenter behind last week’s rate cut. The Consumer Confidence Council report is due later in the session. However, most eyes will be on the Fed’s preferred inflation gauge, core personal consumption expenditures, due out on Friday for further clues.
Federal Reserve Rate Cut Expectations: Neel Kashkari expects the US Federal Reserve to cut interest rates by another 50 basis points by the end of the year. He cited easing inflation in the US as one of the factors driving the decision. Raphael Bostic, for his part, expressed his support for the latest rate cut to avoid further damage to the US labor market.
Press on the Dollar: The dollar came under pressure after data from S&P Global showed a decline in the US manufacturing purchasing managers’ index (PMI) for September. The index fell to a one-year low of 47 in September, indicating weak economic activity in the country.
Safe-haven support for the dollar amid geopolitical tensions
The impact of the rate cut on the dollar: The US dollar’s rise came despite downward pressures that affected the currency’s movements. The US Federal Reserve’s decision to cut interest rates by 50 basis points last week reinforced the dollar’s decline in recent trading. Comments from Raphael Bostic and Neel Kashkari added some pressure to the dollar’s trading in the foreign exchange market.
The US dollar found some support from the sharp decline in the single European currency on the back of contracting manufacturing and service sector PMIs in the euro zone, which raised the possibility that the European Central Bank will continue its rate-cutting cycle faster and more aggressively than the Federal Reserve, which reinforced the euro’s decline in favor of the dollar’s rise.
Australian Dollar Movements: The Australian dollar fell against the US dollar by 0.2% to 0.6825. This decline came after the Reserve Bank of Australia kept interest rates on hold, while reiterating its determination to tame stubborn inflation.
Federal Reserve Policymakers’ Comments: Federal Reserve policymakers Raphael Bostic, Austan Goolsbee and Neel Kashkari spoke on Monday. All three indicated the possibility of further rate cuts. Goolsbee is the most dovish, as he stressed the need for further cuts over the next year. “Interest rates need to come down significantly,” Goolsbee said. He added that he was “comfortable with the 50bp rate cut, which shows the Fed is focused on risks to employment, not just inflation.”
With the RBA policy meeting now underway, Fed Governor Michelle Bowman’s speech, US consumer confidence data from the CB and geopolitical updates in the Middle East will now be on traders’ radars. Also, the German Ifo survey results will be worth noting, especially after the downbeat preliminary Eurozone PMI reports fueled recession fears
Economic activity in Europe slows
Germany, Europe’s largest economy, has seen its downturn deepen. Meanwhile, France, the region’s second largest, has slipped back into contraction. The European Central Bank cut interest rates for the second time this year earlier this month. Further signs of economic weakness could increase the chances of another rate cut in October.
GBP/USD: Sterling was little changed at 1.3347. That’s not far from the two-and-a-half-year high reached last week after the Bank of England left interest rates unchanged.
Analysts at ING explained that the GBP/USD situation is not particularly stretched. Given the weaker dollar environment, the trend remains towards 1.35.
EUR rebounds after sell-off: In Europe, the euro rose 0.2% to 1.1135. The rise comes in an attempt to rebound after falling about 0.5% overnight. Data on Monday will show a sharp contraction in business activity in the eurozone this month, weighing on the European currency.
Yuan gains on stimulus news: The yuan fell 0.2% to 7.0356 against the dollar. The pair fell to its lowest level since May 2023 after the Chinese government announced a package of stimulus measures. This raised hopes for a recovery in Asia’s largest economy.
Japan economic activity data: The US dollar rose 0.6% against the Japanese yen to 144.51. This came after purchasing managers’ index data showed a continued decline in Japanese manufacturing activity, while the services sector saw further growth. The Bank of Japan kept interest rates steady last week, expecting inflation and economic growth to rise steadily.
