The US dollar rose on Tuesday, recouping some recent losses as a measure of calm returned to foreign exchange markets.
At 06:20 ET (10:20 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.4% at 102.907, after falling to a seven-month low on Monday.
Dollar rises after heavy losses
The dollar has been hit hard recently by fears of a U.S. recession after a series of weak labor market readings, which has boosted bets that the Federal Reserve will be forced to cut interest rates more than initially expected.
Traders now expect 110 basis points of rate easing this year from the Fed, with an 80% chance of a 50 basis point cut in September priced in, after a 50 basis point cut was fully priced in on Monday.
U.S. central bank policymakers on Monday rejected the idea that weaker-than-expected July jobs data meant the economy was in free fall, but they also warned that the Federal Reserve would need to cut interest rates to avoid such an outcome.
“The jobs numbers were weaker than expected, but they don’t look like a recession yet,” the Chicago Fed president said. “I think you want to be forward-looking about where the economy is going before you make decisions.”
Euro, pound regain some ground
In Europe, the dollar gained against the euro and the pound, as the European Central Bank and the Bank of England have already begun cutting interest rates to stimulate their economies.
Sterling fell 0.4% against the US dollar to 1.0911, after hitting a seven-month high of 1.1009 on Monday, as data showed a 0.3% fall in June in the euro zone, suggesting consumers are still struggling.
On the other hand, the GDP growth rate in June rose more than expected, rising by 3.9% from the previous month, providing a glimmer of hope for Europe’s largest economy.
The pound fell 0.5% against the US dollar to 1.2706, giving up some of its recent gains as the dollar strengthened.
The central bank cut interest rates last week, lowering its benchmark rate by a quarter of a percentage point to 5%.
Yen falls for first time in August
In Asia, the yen rose 0.2% to 144.47, with the yen weakening for the first day this month, consolidating after stunning moves in recent days.
The yen benefited from increased demand for safe havens as broader financial markets collapsed. Dovish signals from central banks — which raised interest rates and warned of more increases — also boosted the currency, as did the carry trade.
The dollar rose 0.3% against the Japanese yen to 7.1504, with the yuan weakening in anticipation of key trade and inflation data this week.
The Australian dollar fell 0.2% against the US dollar to 0.648, with the Australian dollar weakening after comments from Reserve Bank Governor Michelle Bullock, who indicated that an interest rate cut was still a long way off.
Australia’s central bank kept interest rates steady on Tuesday as expected, while stressing that it is not ruling out anything to control inflation.