Investing.com – The U.S. dollar fell on Thursday, the euro posted small gains and the Japanese yen rose to multi-month highs ahead of a Bank of Japan meeting next week.
At 05:25 ET (09:25 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.2% at 103.950, extending its overnight decline.
Dollar falls ahead of GDP data
The dollar fell on Thursday, extending overnight losses amid growing confidence that the Federal Reserve will cut interest rates in September.
Second-quarter data is due later in the session, and is expected to show annual growth of 2.0%.
This would be higher than the 1.4% growth we saw in the first quarter, but would still be much slower than the 4.2% growth we saw in the second half of last year.
The statement will also show inflation slowed sharply in the fourth quarter, with the GDP price index falling to 2.6% from 3.1%, ahead of Friday’s price index data, the Fed’s preferred measure of inflation.
The US Federal Reserve is scheduled to meet next week and is widely expected to keep interest rates steady while signalling a rate cut in September.
German business morale falls again
In Europe, the euro rose 0.1% to 1.0847, with the euro rising despite German business sentiment falling unexpectedly in July, the third straight fall in Germany’s leading indicator.
The Ifo institute said its index fell to 87.0 points in July from 88.6 points in June.
“The German economy is stuck in a crisis,” said Ifo Institute President Clemens Fuest.
The European Central Bank left interest rates unchanged at 3.75% last week, but markets are pricing in just under two more rate cuts from the ECB for the rest of this year.
The pound was down 0.2% against the US dollar at 1.2885, retreating from the 1.30 level ahead of the Bank of England’s monetary policy meeting next week.
UBS expects the central bank to cut interest rates in what is widely seen as a decision soon on when to start a path of easing that is likely to be slow and steady.
The yen goes from strength to strength.
In Asia, the Japanese yen fell 0.7% to 152.72, with the pair falling to its weakest level in two and a half months as traders abandoned short-selling bets on the yen in the run-up to the Bank of Japan’s July meeting following suspected currency market intervention by the Japanese government.
The central bank is expected to consider raising interest rates by 10 basis points, and may unveil a plan to cut bond purchases by about half in the coming years.
“USD/JPY has now corrected 6% from its highs. This has proven the success of another intervention campaign by the Japanese authorities,” analysts at ING Bank said in a note.
“We believe the success of the intervention was less about the size of the FX sales than about the timing. As was the case in September and October 2022, Japan’s FX intervention was timed to coincide with a cautious reassessment of Fed policy. That’s very smart.”
Sterling fell 0.5% to 7.2281, but remained close to an eight-month high amid ongoing concerns about the country’s slowing economic recovery. Surprise interest rate cuts by the People’s Bank of China added to pressure on the currency and did little to lift sentiment about the Chinese economy.
