Dollar Falls as Markets Weigh Bessent Comment on Fed Rates
Dollar fell against its major trading partners due to weak economic data and market reactions to U.S Secretary comment about Federal Reserve rates cuts.
The dollar slipped across the board on Friday, giving back a chunk of the gains following the release of United States consumer, producer price index report.
Euro Gains 0.53% to $1.1705 on while British pound strengthened by 0.77% to $1.3555 at the close of trading session on Friday in the forex market – Up for two straight weeks.
The DXY index fell by -0.41%, undercut by weaker-than-expected US consumer sentiment report.
The dollar also suffered from underlying foreign investor concern about the possibility of a politically-driven US monetary policy after US Treasury Secretary comment during the week.
Latest data highlighted that U.S. producer prices increased by the most in three years amid a surge in the costs of goods and services, suggesting a broad pickup in inflation was imminent.
The stronger-than-expected producer inflation report from the Labour Department came after data showed consumers paid higher prices for services in the previous month.
US retail sales report was slightly weaker than market expectations, but there was an upward revision for June, leaving the report roughly neutral for the markets.
US industrial production report of -0.1% month on month decline for July was slightly weaker than expectations of unchanged, although June was revised upward to +0.4% m/m from +0.3%. In July, manufacturing production was unchanged, matching market expectations, while July was revised higher to +0.3% from +0.1%.
Markets now cling to the September Federal Reserve rates cut. Treasury Secretary Scott Bessent’s comments on the Fed added fuel to dovish Fed bets.
The US dollar two-year swap rate fell another six basis point to just under 3.40%, around 10bp below pre- consumer price index. Bessent said the Fed’s rate should be 150-175 basis points lower, and that the September cut should be 50 basis points.
ING analyst said markets aren’t pricing in anything over 25bp for now, and a 50bp option would probably not be taken seriously unless there are some hints in that direction at the Jackson Hole symposium or August jobs data hugely disappoints again.
Meanwhile, USD/JPY is the most notable mover as it is down 0.6% to be back under the 147.00 level. The drop in USD/JPY was attributed to FX traders feeling out odds of a quicker rate hike by Bank of Japan after the better-than-expected Japan Q2 gross domestic product (GDP) data.
The yen mostly strengthens against other G-10 and Asian currencies in early trade amid BOJ rate-hike prospects.
U.S. Treasury Secretary Bessent recently said the BOJ is falling behind the curve in addressing inflation, Commerzbank Research analysts say in a research report. #Dollar Falls as Markets Weigh Bessent Comment on Fed Rates#
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