The U.S. dollar edged higher in early European trade on Thursday, recovering from heavy losses in the previous session after the Federal Reserve opened the door to a September interest rate cut, while sterling fell ahead of the Bank of England’s latest policy meeting.
At 05:45 ET (09:45 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.3% at 104.154, after falling 0.4% on Wednesday.
The index fell 1.7% in July, its weakest monthly performance this year.
Dollar pares Fed-linked losses
The central bank kept interest rates on hold at the end of its two-day policy meeting, as widely expected, but also signaled that monetary easing was imminent.
The Fed chairman noted that while inflation is running “somewhat” above target, upside risks have diminished and downside risks to the labor market are increasing.
Powell’s comments “suggest that the bar is not too high” for a September rate cut, Goldman Sachs economists said in a note.
“We continue to expect July inflation data to be favorable (21bps for core CPI and 19bps for core PCE) and believe that even favorable news is likely to preclude a September rate cut,” Goldman Sachs economists added.
The July report is scheduled to be released on August 14.
There is a lot of economic data due on Thursday, including weekly data for June and July, but the main focus now is on the widely watched monthly report due on Friday.
The report is expected to show that the U.S. economy created 177,000 jobs in July, down from 206,000 the previous month. The employment rate, which has risen slightly in each of the past three months, is expected to hold steady at 4.1%.
Sterling falls ahead of Bank of England meeting
In Europe, the pound fell 0.7% to 1.2767, with the pound falling sharply ahead of a meeting scheduled later in the session.
There is a great deal of uncertainty surrounding this decision as senior central bank officials have not spoken publicly for more than two months due to the UK general election in July.
The UK returned to the Bank of England’s 2% target in May and stayed there in June, suggesting a cut later on Thursday is a possibility.
In June, the MPC voted 7-2 to keep interest rates unchanged, but the minutes of the meeting recorded that many of those who voted to keep were close to voting to cut them.
The euro fell 0.4% against the US dollar to 1.0783 after data showed that manufacturing activity in the euro zone remained stuck in contraction in July, suggesting the European Central Bank will have to cut interest rates again this year to support the slowing economy.
The final reading of the HCOB, compiled by S&P Global, settled at 45.8 in June/July, slightly ahead of the initial estimate of 45.6.
The index has remained below the 50 mark separating growth from contraction for more than two years.
The yen rose in July.
In Asia, the Japanese yen fell 0.2% to 149.66, with the yen strengthening after the Bank of Japan raised interest rates to levels not seen in 15 years, as well as the Federal Reserve putting interest rate cuts on the table as inflation slows in the United States.
The yen rose 7% in July, its strongest monthly performance since November 2022, after starting the month rooted near 38-year lows, due in part to bouts of intervention by Japanese authorities that amounted to $36.8 billion.
The Australian dollar index rose 0.3% to 7.2432, after data showed an unexpected contraction in China’s manufacturing sector, following weak government PMI data earlier in the week.
The readings raised concerns about a broader slowdown in China’s biggest economic engine, worsening sentiment toward the country and prompting more calls for stimulus measures from Beijing.
