Investing.com – The U.S. dollar fell on Thursday as traders began to factor in aggressive monetary easing by the Federal Reserve to combat a slowing economy.
At 04:10 ET (09:10 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.2% at 102.802, not far from a seven-month low hit on Monday.
Dollar falls ahead of jobless claims
Last week’s disappointing release has raised concerns that the U.S. economy is heading toward recession, which would likely force the bank to cut interest rates more quickly than initially expected.
JPMorgan Chase raised the odds of a U.S. recession by the end of the year to 35% from 25% earlier, citing easing pressures on the labor market.
This has led markets to price in a 100% chance of the Fed cutting interest rates by 50 basis points in September, according to CME’s FedWatch tool.
There was talk earlier this week of an emergency rate cut ahead of the September meeting, although the chances of this have since receded as markets have stabilized somewhat.
There is more labor market data to digest on Thursday, in the form of weekly data, and next week we will see the US July report ahead of the central bank’s economic policy symposium the following week.
Euro rises
In Europe, the pound rose 0.2% to 1.0940, benefiting from a weaker dollar with little economic data to influence trading.
The central bank began cutting interest rates in June, and many expect policymakers to approve any cut in September.
The European Central Bank can continue to cut interest rates if confidence in a slowdown in inflation in the near future is strengthened, Finnish ECB policymaker Olli Rehn said in a speech on Wednesday.
“Inflation continues to slow, but the path to the 2 percent target remains bumpy this year,” Ren said.
The pound (dollar) rose 0.1% to 1.2700, hovering near a one-month low touched on Tuesday.
The Bank of England is due to release its data later in the session, which could provide further clues as to why the central bank decided to cut interest rates last week.
Yen rises as carry trade weakens
In Asia, the Australian dollar fell 0.3% to 146.19, after rising 1.6% on Wednesday after Bank of Japan Deputy Governor Shinichi Uchida played down the chances of a near-term interest rate hike.
The pair fell sharply to a seven-month low of 141.67 at the start of the week as the sudden surge from last week prompted investors to exit carry trades, where traders borrow yen at low interest rates to invest in dollar-denominated assets for higher returns, helping lift the yen.
About three-quarters of global carry trades have been removed, JPMorgan strategists said in a note on Wednesday.
In its latest report, JP Morgan noted that the risk-reward ratio for global investing is low due to the upcoming US elections and potential repricing of financiers based on low US interest rates.
Sterling fell 0.1% against the US dollar to 7.1683, after a series of strong mid-point fixings that helped the currency outperform mid-term trade data released on Wednesday.
The Australian dollar rose 0.7% against the US dollar to 0.6559, with the Aussie gaining after Reserve Bank of Australia Governor Billock said the bank would not hesitate to raise interest rates due to further upside risks to inflation.
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