The U.S. dollar has been hovering near an eight-week low, facing pressure ahead of the release of the crucial U.S. jobs report. The dollar index, which tracks the currency against major rivals, including the euro, has been stagnant at 104.13. This stagnation comes after breaking below 104 earlier in the week, a level not seen since April 9. With weaker macro data indicating possible Fed rate cuts, traders are anticipating a softer non-farm payrolls report, potentially falling below the economist’s forecast of 185,000 jobs growth.
Expectations for Interest Rate Cuts
The Federal Reserve is not expected to make any immediate changes at its next meeting, but the market is already pricing in 50 basis points of cuts by the end of December. The first cut is likely to occur in September, based on current market sentiment. This expectation is influenced by the recent weaker economic data and the possibility of two quarter-point rate cuts in the near future. Despite some signals of a potential rate cut, Joseph Capurso, from Commonwealth Bank of Australia, suggests that the U.S. labor market is not weak, but rather showing signs of strength.
On the other hand, the euro has been relatively stable, holding onto gains after the European Central Bank (ECB) reduced rates by a quarter point. The ECB’s move was well-telegraphed, but provided minimal hints about future easing measures. The euro is currently flat at $1.0889, following a slight increase in the previous session. Despite the rate cut, the ECB raised its inflation forecast, expecting it to exceed the 2% target until late next year.
Sterling has also shown little movement, trading close to the week’s high amid uncertainties surrounding Brexit. The dollar is slightly up against the yen at 155.85, but is heading towards a weekly loss of nearly 1%. The Bank of Japan’s upcoming policy decision is also influencing market sentiment, with speculations arising about potential reductions in the government bond purchases program.
The U.S. jobs report is anticipated to have a significant impact on the performance of the dollar and euro. With expectations of Fed rate cuts and uncertainties surrounding global economic growth, currency markets are likely to experience heightened volatility in the coming weeks. Traders and investors are advised to closely monitor economic indicators and central bank announcements to navigate the evolving landscape of the forex market.