The dollar has weakened significantly against major currencies, reaching its lowest point against the euro in 2020. Traders are anticipating crucial revisions to U.S. payrolls data and are closely monitoring a speech by Federal Reserve Chair Jerome Powell later in the week. The decline in the U.S. currency can also be attributed to falling U.S. bond yields, which have hit their lowest levels since August 5th.
A weak monthly payrolls report at the beginning of the month caused a spike in volatility across different asset classes. Market participants are awaiting revised data which is scheduled to be released later in the day. The initial payrolls report led to speculations of a potential interest rate cut by the Fed. However, recent positive macroeconomic data has caused a shift in market expectations, with bets now favoring a quarter-point cut rather than a half-point cut.
Investors will be closely monitoring Powell’s speech at the Kansas City Fed’s Jackson Hole economic symposium on Friday. The speech will provide insights into the Fed’s future monetary policy decisions, particularly regarding the size of the anticipated rate cut next month. Powell’s remarks will also shed light on the likelihood of further rate cuts in the coming months.
Currency Performance
The U.S. dollar index, measuring the currency against major rivals, has reached a fresh low since January 2nd. The euro, on the other hand, has risen to $1.1131, the highest level since December 28th. Sterling and the yen have also gained against the dollar, with sterling standing at $1.3033 and the yen at 144.98, breaching the 145 barrier for the first time since August 6th.
Traders are keeping a close watch on a special session of Japan’s parliament, where the Bank of Japan’s decision to raise interest rates last month will be scrutinized. BOJ Governor Kazuo Ueda’s testimony will be pivotal, especially after his deputy’s recent dovish stance. In Australia and New Zealand, their respective currencies have also experienced gains, nearing one-month and two-month highs, respectively.
The weakening of the dollar against major currencies can be attributed to various factors including U.S. bond yields, payrolls data revisions, and expectations surrounding Powell’s speech. The shifting market sentiment highlights the uncertainty surrounding future monetary policy decisions and underscores the importance of upcoming economic indicators in determining the dollar’s performance in the coming days.