The U.S. dollar bounced back in early European trade on Thursday after suffering losses following the Federal Reserve's suggestion of a potential rate cut in September. Meanwhile, the U.K. pound weakened ahead of the Bank of England's policy-setting meeting.
By 05:45 ET (09:45 GMT), the Dollar Index, which measures the dollar against six other currencies, was up 0.3% at 104.154, recovering from a 0.4% drop on Wednesday. The index had its worst monthly performance of the year in July, falling 1.7%.
Dollar Recovers from Fed's Signals
The Federal Reserve decided to keep interest rates unchanged at the end of its two-day meeting on Wednesday as expected. However, Fed Chair Powell hinted at a possible easing of monetary policy in the near future, citing diminishing upside risks to inflation and growing downside risks to the labor market.
Economists at Goldman Sachs believe that the July inflation data, set to be released on August 14, could support a rate cut in September, especially if the numbers are positive.
On the economic front, there is a lot of data scheduled for release on Thursday, with the focus shifting to Friday's highly anticipated monthly jobs report, expected to show a moderate job growth in July.
Pound Weakens Ahead of BOE Meeting
In Europe, the pound dropped 0.7% to 1.2767 as investors awaited the Bank of England's meeting later in the day. Uncertainty looms over the decision, with some analysts predicting a rate cut given the recent inflation figures.
The euro also fell 0.4% to 1.0783 after disappointing eurozone manufacturing data suggested a possible rate cut by the European Central Bank to stimulate the economy.
Yen Surges, Yuan Weakens in July
In Asia, the yen strengthened, while the yuan weakened due to concerns over China's slowing economy. The Bank of Japan's interest rate hike and the Fed's rate cut talks contributed to the yen's 7% surge in July, its best performance since 2022.
Overall, the global currency market is reacting to central bank decisions and economic data, with investors closely monitoring the potential impact on their investments and financial strategies.