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US dollar advances on month-end demand; focus on economic data

Published 08/27/2024, 09:31 PM
Updated 08/28/2024, 03:40 PM
© Reuters. FILE PHOTO: U.S. dollar bills are seen on a light table at the Bureau of Engraving and Printing in Washington, November 14, 2014. REUTERS/Gary Cameron/File Photo
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By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The U.S. dollar gained on Wednesday due to month-end buying and technical factors after recent declines that pushed it to its weakest in more than a year, as traders awaited data that could dictate the pace of the Federal Reserve's imminent easing cycle.

Sharp (OTC:SHCAY) bouts of volatility hit foreign exchange markets this month as worries around a potential U.S. recession and hawkish signals from the Bank of Japan hammered the dollar and sent other major currencies soaring.

Traders also awaited earnings from artificial intelligence (AI) chip giant Nvidia (NASDAQ:NVDA), which has sparked a frenzy on Wall Street and beyond in recent years. The dollar has also been sensitive to moves in equity markets this year.

"With a series of potentially treacherous event risks looming, including this evening's earnings release from Nvidia and next Friday's hugely important non-farm payrolls report, traders are cutting exposures and buying the greenback against high-beta currencies," said Karl Schamotta, chief market strategist, at Corpay in Toronto.

The dollar index, which measures the U.S. unit against a basket of six major currencies, rose 0.5% to 101.11, on pace for its largest daily percentage gain since mid-June.

For the month of August, however, the greenback has fallen 2.8%, its worst monthly decline since November 2023. It reached a 13-month low of 100.51 in the previous session, weighed down by a recent sharp re-evaluation of expectations for Fed rate cuts.

"The dollar's rise today is warranted given the move lower this month. We have seen a sharp depreciation in the dollar, being down 5% in the second half of 2024," said Boris Kovacevic, global macro strategist at Convera in Vienna, Austria.

"Looking at the flows, I would attribute the dollar bid today to the usual month-end flows, especially given the fall in the dollar this month."

Investors also expect the Fed to begin cutting interest rates next month following Chair Jerome Powell's dovish tilt last week, with the debate now centered on whether or not it will do a super-sized 50-basis point cut, or the standard 25-bp easing.

Current pricing indicated a 37% chance of the larger cut, unchanged from late on Tuesday, according to LSEG calculations. Markets also priced in about 105 bps of easing by the end of the year.

DATA AHEAD

A preliminary estimate for U.S. gross domestic product in the second quarter is due later this week, along with the core personal consumption expenditures (PCE) index, the Fed's preferred inflation measure. Both could likely drive the dollar lower if the numbers come out weaker than expected.

But given that markets have been expecting rate cuts from September for weeks now, the downside momentum on the dollar could be waning, with support built around 100.18/30 in the dollar index, said Matt Simpson, senior market analyst at City Index.

"More broadly, valuations look overdone across a range of asset classes. If investors get cold feet in the coming weeks, the dollar's global dominance...might come in handy once again," said Corpay's Schamotta.

Against the yen, the dollar rose 0.5% to 144.685 yen, moving away from Monday's three-week low.

The euro slid 0.6% to $1.1116, still within reach of the 13-month peak seen earlier this week.

Investors await the release of euro zone August inflation data later in the week, which could provide clues about the European Central Bank's monetary policy path.

Sterling fell 0.6% to $1.3186, after hitting its highest since March 2022 on Tuesday as traders bet the Bank of England will go slower on monetary policy easing than the Fed.

The Australian dollar rose to a nearly eight-month high against the U.S. currency after data showed domestic inflation slowed to a four-month low in July, although the general progress on tempering price gains disappointed. The Aussie was last down 0.2% at US$0.6780.

In cryptocurrencies, bitcoin sank 4.1% to $59,302 , part of a broader retreat in digital currency prices, as the initial boost from Powell's strong signal on rate cuts faded.

Currency              

bid

prices at

28

August​

07:20

p.m. GMT

Descripti RIC Last U.S. Pct YTD Pct High Low

on Close Change Bid Bid

Previous

Session

Dollar 101.08 100.6 0.49% -0.29% 101.17 100.

index 59

Euro/Doll 1.1117 1.1184 -0.61% 0.71% $1.1184 $1.1

ar 105

Dollar/Ye 144.69 144.01 0.47% 2.58% 145.035 143.

n 785

Euro/Yen 1.1117​ 161 -0.09% 3.35% 161.37 160.

46

Dollar/Sw 0.8421 0.8416 0.08% 0.08% 0.8452 0.84

iss 12

Sterling/ 1.3185 1.3261 -0.56% 3.62% $1.3261 $1.1

Dollar 105​

Dollar/Ca 1.3473 1.3444 0.23% 1.65% 1.3488 1.34

nadian 41

Aussie/Do 0.6779 0.6793 -0.19% -0.56% $0.6813 $0.6

llar 765

Euro/Swis 0.9362 0.9412 -0.53% 0.82% 0.9419 0.93

s 53

Euro/Ster 0.8428 0.8434 -0.07% -2.77% 0.8439 0.84

ling 11

NZ 0.6242 0.6253 -0.15% -1.2% $0.6254 0.62

Dollar/Do 24

llar

Dollar/No 10.5016​ 10.4588 0.41% 3.62% 10.5451 10.4

rway 511

Euro/Norw 11.6753 11.7041 -0.25% 4.02% 11.7416 11.6

ay 61

Dollar/Sw 10.1985 10.1492 0.49% 1.31% 10.22 10.1

eden 448

© Reuters. FILE PHOTO: U.S. dollar bills are seen on a light table at the Bureau of Engraving and Printing in Washington, November 14, 2014. REUTERS/Gary Cameron/File Photo

Euro/Swed 11.337 11.3517 -0.13% 1.91% 11.3656 11.3

en 196

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