As the U.S. dollar falls in early European trade, concerns about a sharp slowdown in the world's largest economy are on the rise. This could lead to the Federal Reserve taking aggressive measures to loosen monetary policy. At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 103.997. This decline follows a 1.7% drop in July, marking its weakest monthly performance this year.
Dollar weaker on recession fears
Recent data revealed that the U.S. economy contracted at the fastest pace in eight months in July, with a sharp decline in employment indicators. This has raised concerns about a potential U.S. recession, casting doubts on the upcoming jobs report. Economists are anticipating a moderation in job creation to 177,000 in July from 206,000 in the previous month. The unemployment rate is expected to remain steady at 4.1%.
Analysts at ING are bearish on the dollar, citing weaker payroll print risks and macro drivers that could drag the USD lower. The upcoming jobs report will provide crucial insights to the Federal Reserve regarding the employment side of their mandate.
Sterling falls in wake of BOE cut
In Europe, the pound slipped 0.1% to 1.2734 following the Bank of England's decision to cut interest rates on Thursday. BoE Governor Andrew Bailey led a 5-4 decision to reduce rates by a quarter-point to 5%. The central bank hinted at a cautious approach going forward, implying a gradual pace of reductions. Meanwhile, the euro rose 0.3% to 1.0820 after hitting a three-week low overnight.
Data from Thursday indicated that the eurozone manufacturing sector remains in contraction territory, signaling potential interest rate cuts to stimulate the slowing economy.
Yen continues to surge
In Asia, the yen fell 0.3% to 148.84, with the currency strengthening after the Bank of Japan hiked interest rates by 15 basis points and hinted at more potential hikes in 2024. On the other hand, the yuan dropped 0.5% to 7.2071 due to weak PMI data fueling concerns of an economic slowdown.
Stay tuned for further market updates and analysis on global currencies and their impact on the financial landscape.