Dollar Extends Losses As Markets Cling On To Fed Cut Hopes

(RTTNews) - The Dollar extended losses during the week ended August 15 amidst strong Fed rate cut expectations, benign consumer price growth, easing geopolitical concerns as well as fading concerns about trade tariff uncertainty.

The U.S. Dollar inter alia slipped against the euro, the British pound as well as the Japanese yen but held firm against the Australian dollar. The greenback declined against the Swiss franc and the Swedish krona but strengthened against the Canadian Dollar. The Dollar Index which measures the Dollar's strength against a basket of 6 currencies dropped less than half a percent.

From the level of 98.18 on August 8, the Dollar Index plunged 0.34 percent in a week's time. The Index which had touched a weekly high of 99.32 on Monday dropped to the weekly low of 97.63 by Thursday. The Index subsequently recovered and closed the week at 97.85.

The greenback had strengthened at the onset of the week amidst concerns about a hotter-than-anticipated level of consumer price inflation that could potentially weaken the case for a Fed rate cut in September. The decision by U.S and China on Monday to extend the trade truce by another 90 days provided relief to markets but had limited impact on the dollar's trajectory.

In data released on Tuesday morning by the U.S. Bureau of Labor Statistics, headline annual consumer price inflation unexpectedly remained steady at 2.7 percent in July, pleasantly surprising markets that had anticipated an uptick to 2.8 percent. The core component thereof which was seen rising to 3 percent from 2.9 percent in June however disappointed with a rise to 3.1 percent. While month-on month inflation edged down as expected to 0.2 percent from 0.3 percent in June, the core component thereof edged up as expected to 0.3 percent, from 0.2 percent in June.

Given the weak labor market data released in the previous week, markets continue to expect the Fed to proceed with a rate cut in September despite consumer price inflation remaining above the Fed's comfort level. The firm rate cut expectations dragged down sentiment for the dollar.

Data released by the U.S. Bureau of Labor Statistics on Thursday morning showed headline producer prices as well as its core component rising 0.9 percent month-on-month in July versus the flat reading in June. The biggest increase in producer prices since June 2022 came in much higher than expectations of 0.2 percent, boosting the dollar. The dollar's rebound on Thursday in response to the producer price inflation readings was however short-lived. Amidst lingering fears that Americans are holding back on purchases, Friday's data showed retail sales increasing 0.5 percent month-over-month in July, in line with market expectations and versus an upwardly revised 0.9 percent rise in June. Anticipation ahead of the meeting between President Trump and his Russian counterpart in Alaska also weighed on sentiment for the dollar. The Dollar Index eventually erased 0.34 percent in a week's time.

Amidst the dollar's weakness as well as expectations of an easing in the geopolitical tensions in Eastern Europe, the EUR/USD pair rallied 0.50 percent during the week ended August 15. From the weekly low of 1.1590 touched on Monday, the pair jumped to 1.1731 on Wednesday. The pair eventually closed at 1.1698, versus 1.1640 a week earlier.

The British pound also gained against the greenback during the week ended August 15 amidst a steady unemployment rate that matched expectations, and a rebound in monthly GDP that exceeded expectations. The GBP/USD pair which had closed at 1.3451 on August 8 gained 0.75 percent during the week ended August 15 to close at 1.3552. The weekly trading range was wider, between a low of 1.3398 recorded on Monday and a high of 1.3596 recorded on Thursday.

The Australian Dollar slipped 0.29 percent against the U.S. Dollar during the week ended August 15 amidst the Reserve Bank of Australia slashing its cash rate by 25 bps to 3.6 percent, in line with market expectations. From the level of 0.6526 recorded on August 8, the pair declined to close the week ended August 15 at 0.6507. During the week, the pair oscillated between a low of 0.6481 recorded on Tuesday and the high of 0.6570 recorded on Thursday.

The U.S. Dollar weakened against the Japanese Yen during the week ended August 15. The USD/JPY pair closed the week at 147.20 versus 147.73 a week earlier, registering a decline of 0.36 percent. The pair ranged between the high of 148.54 recorded on Tuesday and the low of 146.20 recorded on Thursday. Data released during the week showed Japan's GDP grew 0.3 percent quarter-on-quarter in the second quarter, surpassing market expectations.

Markets now wait for the release of the FOMC minutes on Wednesday and the Jackson Hole symposium later in the week for guidance on the Fed's interest rate strategy. Amidst the monetary policy anxiety as well as the developments on the geopolitical front, the Dollar Index is currently at 98.05 versus 97.85 at close on Friday.

Amidst the Dollar's rebound, the EUR/USD pair has slipped 0.16 percent to 1.1679 versus 1.1698 at close on Friday. The GBP/USD pair edged down 0.09 percent to 1.3540 versus 1.3552 at the end of the previous week. The AUD/USD pair is at 0.6496 versus 0.6507 at close on Friday. The USD/JPY pair has surged to 147.73 from the level of 147.20 recorded at close on Friday.