On Thursday, the dollar was dragged down as expectations for further Federal Reserve rate cuts diminished.
Meanwhile, the euro gained ground after Eurozone private sector data enhanced anticipations that the bloc’s economy could prevent a recession.
The dollar weakened 0.2% at 1.1104 euros. It was after French and German PMI data for August came in ahead of prospects.
But the reports presented Germany’s manufacturing sector continued at recession levels and activity in the service sector decelerated.
The dollar glided 0.15% to 106.44 versus the yen, succeeding a 0.36% gain on Wednesday, its biggest since August 13.
On Friday, Fed Chairman Jerome Powell’s will have a speech and investors are now observing ahead for signs of just how far the U.S. central bank is ready to lower rates.
The comments are of particular interest after an inversion in the Treasury yield curve emphasized the risk that the U.S. economy may fall into recession.
While the Fed’s minutes toughened some dovish prospects, markets still broadly expect further rate cuts as growth slows.
Prospects of Additional Rate Cuts
A senior foreign exchange strategist at IG Securities in Tokyo, Junichi Ishikawa said, “yields are supportive of the dollar for now, but this may not last after Powell’s speech.”
He also added, “Additional rate cuts are thoroughly priced in.”
Lastly, “If Powell sounds slightly hawkish, stocks could sell off, which would hurt the dollar against safe-haven currencies like the yen.”
Last month, Fed policymakers were deeply divided over whether to cut interest rates but were unified in wanting to signal they were not on a fixed path to more cuts.
However, this message is not likely to sit well with U.S. President Donald Trump.
The U.S President has repetitively bashed Powell for not cutting interest rates more aggressively.
To contain a global economic slowdown caused by a prolonged trade war between the United States and China, the Fed and other central banks are cutting interest rates.
The British pound was a touch lower versus the euro. It is on course for its second day of losses, as ambiguity regarding the Britain’s divorce from the European Union weighed on sterling.
Sterling edged up to 1.2135 against the greenback.