By Brigid Riley
The US dollar remains close to its lowest point in over a year against a basket of currencies, while sterling sits near multi-year highs. Investors are eagerly awaiting signals regarding the size of the anticipated US interest rate cut next month.
In Asia, cryptocurrency bitcoin has seen a 4% drop after breaking below the $60,000 support level.
The Australian dollar has climbed to an eight-month high following data showing a slowdown in domestic inflation in July. However, the overall progress in curbing price increases has disappointed, leaving the AUD flat at $.06793.
According to Charu Chanana, Saxo’s head of FX strategy, the Reserve Bank of Australia is unlikely to change course at the upcoming September meeting. This, combined with cyclical USD weakness and stable global growth dynamics, could strengthen the AUD in the short term.
With traders eagerly awaiting updates on the US economy, it is widely expected that the Federal Reserve will begin reducing interest rates next month. The debate now centers on whether the cut will be a 25-basis point or a larger 50-basis point reduction.
Markets are currently pricing in a 36% chance of the larger cut, up from 29% a week ago. Expectations are for a total of over 100 basis points worth of easing by the end of the year.
Upcoming data on US GDP in the second quarter and the core PCE index, the Fed’s preferred inflation measure, will be crucial. However, the focus has shifted from inflation to economic strength, making the importance of this week’s PCE data debatable.
The US Dollar Index, which measures the greenback against a basket of currencies, is slightly higher at 100.78, above a 13-month low. The dollar has seen a 3.4% decline this month, the largest since November 2022.
Despite the downward trend in the dollar, support is holding around 100.18/30. Sterling has dipped slightly to $1.3243 after reaching its highest level since March 2022, while the euro is down to $1.1156.
The yen has moved lower against the dollar, while the New Zealand dollar has dipped. In the cryptocurrency market, bitcoin is down 4.1% at $59,329.
Analysis:
The current state of the US dollar against other currencies reflects market expectations of an upcoming interest rate cut by the Federal Reserve. This can impact various sectors including exports, imports, investments, and inflation. For consumers, a weaker dollar may mean cheaper imports but could also lead to higher inflation. Investors should monitor upcoming economic data and central bank announcements to make informed decisions regarding their finances.