By the World's Best Investment Manager, Financial Market's Journalist, and SEO Mastermind
The dollar is teetering near a seven-month low as speculation grows that the U.S. central bank will initiate interest rate cuts starting next month. All eyes are on Federal Reserve Chair Jerome Powell's speech on Friday for further guidance.
This dollar weakness has propelled the euro to its highest level this year, while the sterling is hovering near a one-month peak. The emerging markets currency index has also reached a record high.
Investors are closely monitoring Powell's upcoming speech in Jackson Hole, which may keep them cautious about making significant investment decisions beforehand.
Experts anticipate Powell will acknowledge the need for rate cuts, but the extent of the cut remains uncertain. Joseph Capurso from the Commonwealth Bank of Australia predicts a standard 25 basis point cut rather than a larger one, leading to further dollar depreciation.
The euro is currently trading at $1.1080, its highest level since December 28, with a 2.4% increase this month. The pound remains steady at $1.2985, after reaching a one-month high of $1.2998 previously.
The U.S. Dollar Index, which measures the dollar against six major currencies, hit its lowest point since January 2 at 101.82 on Tuesday. The index is down over 2% in August, signaling a potential second consecutive month of losses.
Market expectations for rate cuts in September have shifted, with a reduced likelihood of a 50 basis point cut and increased chances of a 25 basis point cut, according to the CME FedWatch Tool. Traders are pricing in a total of 93 basis points of cuts this year.
Despite the current economic conditions, some experts believe the Fed may not cut rates as aggressively as anticipated, potentially leading to an upward revision in rate expectations and supporting the dollar and Treasury yields.
Most economists polled by Multibagger expect the Fed to implement 25 basis point cuts in the remaining three meetings of 2024. Additionally, investors are awaiting the release of the Fed's meeting minutes on Wednesday for further insights.
In the currency market, the Australian dollar is slightly lower at $0.6725, while the New Zealand dollar remains stable at $0.61135.
Stay tuned for more updates on the evolving financial landscape and the impact of potential rate cuts on global markets.