Dollar wobbles on rising bets of outsized Fed rate cut

Thursday,   05-Sep-2024   08:28 AM (IST)

The dollar dipped on Thursday as traders ramped up bets for a supersized rate cut from the Federal Reserve later this month, with the yen a notable outperformer on safe-haven demand as concerns over the U.S. economy's growth outlook resurfaced. Global markets have been on edge and stocks, in particular, badly bruised, after softer-than-expected U.S. data out this week reignited concerns that the growth outlook of the world's largest economy was less rosy than earlier thought and that the labour market could be slowing more sharply than expected. That has led to investors fleeing risky assets in search of safety, with the yen one of the biggest beneficiaries. The Japanese currency was last 0.26% stronger at 143.56 per dollar, having already gained nearly 2% for the week thus far. The Swiss franc, also a traditional safe-haven currency, steadied at 0.8461 per dollar, though its 0.46% gain for the week to date was more subdued compared to the yen's rise. Data released on Wednesday showed U.S. job openings dropped to a 3-1/2-year low in July, suggesting the labor market was losing steam, with the figures coming after Tuesday's ISM manufacturing survey which remained in contraction territory. Investors have in recent times placed heightened importance on any data relating to the health of the U.S. labour market, given the Fed's focus on protecting it. The U.S. dollar remained on the backfoot in early Asia trade, with the euro steady at $1.1083. Sterling was little changed at $1.3147. Against a basket of currencies, the greenback fell marginally to 101.25. Traders are now pricing in a 44% chance of an outsized 50-basis-point rate cut when the Fed meets later this month, up from 38% a week ago, according to the CME FedWatch tool. Still, the focus remains on Friday's nonfarm payrolls report, where expectations are for the U.S. economy to have added 160,000 jobs in August, compared with July's 114,000 increase. The unemployment rate is forecast to ease slightly to 4.2%. In other currencies, the Australian and New Zealand dollars were weighed down by the risk off mood on Thursday. The Aussie fell 0.15% to $0.67155, while the kiwi was last 0.2% lower at $0.6186.