Investing.com – The U.S. dollar fell in early European trade on Friday after weak data fueled concerns of a sharp slowdown in the world’s largest economy, which could prompt the Federal Reserve to ease monetary policy significantly.
At 04:00 ET (09:00 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.2% at 103.997, extending its slide after falling 1.7% in July, its weakest monthly performance this year.
Dollar falls on recession fears
Data overnight showed the U.S. economy contracted at its fastest pace in eight months in July, while employment fell sharply, raising the prospect of a U.S. recession.
This also suggests that risks surrounding the key report due later in the session are trending downward.
Economists expect the U.S. economy to have added 177,000 jobs in July, down from 206,000 the previous month.
The US inflation rate, which has risen in each of the past three months, is expected to remain steady at 4.1%.
“We are bearish on the dollar today because a) evidence from the employment components of the ISM and NIE surveys suggests that risks are tilted to weaker payrolls, and b) once the turmoil in equity and safe-haven demand subsides, macroeconomic drivers should drag the US dollar lower,” ING analysts said in a note.
“The July jobs report will tell the Fed how far risks have shifted to the employment side of its mandate.”
Sterling falls after Bank of England rate cut
In Europe, the pound fell 0.1% to 1.2734, after falling to 1.2708 earlier for the first time since July 3 following the Bank of England’s decision to cut interest rates on Thursday.
Bank of England Governor Andrew Bailey led a decision to cut interest rates by a quarter of a percentage point to 5% by a 5-4 majority, and said the central bank would move cautiously in the future, signalling a steady pace of cuts.
The pound rose 0.3% against the US dollar to 1.0820, after hitting a three-week low of 1.0777 overnight.
Euro zone manufacturing activity remained in contraction territory in July, data showed on Thursday, suggesting the region will have to cut interest rates again this year to support a slowing economy.
“The eurozone calendar is empty today and we are entering a seasonal lull not only in terms of data but also in terms of ECB speakers. Given the recent weak eurozone activity indicators, this is likely to be a good thing for the euro,” ING said.
Yen continues to rise
In Asia, the yen fell 0.3% to 148.84, with the yen continuing to rise after the Fed raised interest rates by 15 basis points and indicated more hikes are possible in 2024, pointing to some improving trends in the Japanese economy.
The US dollar fell against a basket of major currencies on Thursday by 0.5% to 7.2071, with the yuan weakening after weak PMI data fueled concerns about a slowing economy.