US Dollar Rallies on Month-End Demand as Traders Await Key Economic Data

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

Sharp 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, 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. 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. (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Brigid Riley in Tokyo and Sruthi Shankar in Bengaluru; Editing by Miral Fahmy, Mark Potter and Kevin Liffey)

US dollar rallies on month-end buying; traders await economic data

The dollar index, which measures the greenback against a basket of six major currencies, rose 0.4% to 100.99, on pace for its largest daily percentage gain since mid-June. For the month of August, however, the greenback has fallen 3.4%, 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 in the dollar 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 across the board expect the Fed to begin cutting interest rates next month following Chair Jerome Powell's dovish tilt last week, with the debate now centred on whether or not it will be a super-sized 50-basis point cut, or the standard 25-bp easing. Current pricing indicated a 35% chance of the larger cut, slightly down from 37% late on Tuesday, according to LSEG calculations. Markets were also pricing in about 105 bps of easing by the end of the year. "The overall Fed narrative is obviously negative for the dollar and attributed to the expectations of aggressive policy easing by the Fed, rightly or wrongly," Kovacevic said. Traders also awaited earnings from artificial intelligence (AI) chip giant Nvidia, 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 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. But with attention shifting from inflation to the strength of the economy, the importance of this week's PCE data is "debatable", said Matt Simpson, senior market analyst at City Index: "It will require a strong upside surprise to dispel expectations of multiple Fed cuts." But given that markets have been pricing in easing from September for weeks now, downside momentum on the dollar appears to be waning, with support built up around 100.18/30 in the dollar index , Simpson said. Against the yen, the dollar rose 0.3% to 144.45 yen, moving away from Monday's three-week low. The euro slid 0.5% to $1.1132, still within reach of the 13-month peak touched at the start of the 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 dipped 0.3% to $1.3223, after hitting its highest since March 2022 on Tuesday as traders bet that 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, but the general progress on tempering price gains disappointed. The Aussie was last little changed at US$0.6792. In cryptocurrencies, bitcoin was last down 4.2% at $59,273, part of a broader retreat in digital currency prices, as the initial boost from Powell's strong signal on rate cuts faded. (Reporting by Gertrude Chavez-Dreyfuss in New York, Brigid Riley in Tokyo and Sruthi Shankar in Bengaluru; Editing by Miral Fahmy, Mark Potter and Kevin Liffey)

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

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 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, 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. (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Brigid Riley in Tokyo and Sruthi Shankar in Bengaluru; Editing by Miral Fahmy, Mark Potter and Kevin Liffey)

Dollar rebounds, traders seek clarity on US rate path

The dollar index, which measures the greenback against a basket of currencies, rose 0.42% to 100.96 on Wednesday, but looked on course for its biggest monthly drop since November 2023. It reached a 13-month low of 100.51 in the previous session, pressured by a sharp reevaluation of expectations for Fed rate cuts. "It's quite clear that the market has priced in close to a 3% terminal rate, and bear in mind that rates are over 5% right now. A lot of this has been priced in quite quickly over the recent period," said Ed Hutchings, head of rates at Aviva Investors. "There could be a bit of a pause for the dollar (declines) and room for yields to potentially move higher." Traders also awaited earnings from AI chip giant Nvidia, which has sparked a frenzy on Wall Street and beyond in recent years. The dollar has been sensitive to moves in equity markets this year. Investors are unanimous in bets that the Fed will begin cutting interest rates next month following Chair Jerome Powell's dovish tilt last week, with the debate now centred on whether or not it will be a super-sized 50-basis point cut. The current pricing sits at a 35% chance for the larger cut, up from 29% a week ago, according to the CME Group's FedWatch Tool. Markets see just over 100 basis points 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. But with attention shifting from inflation to the strength of the economy, the importance of this week's PCE data is "debatable", said Matt Simpson, senior market analyst at City Index. "It will require a strong upside surprise to dispel expectations of multiple Fed cuts." But given markets have been pricing in easing from September for weeks now, downside momentum on the dollar appears to be waning, with support built up around 100.18/30, Simpson said. With the dollar stabilising on Wednesday, sterling ticked down 0.3% to $1.3216. The British currency hit its highest since March 2022 at $1.3269 on Tuesday as traders bet the Bank of England will go slower on monetary policy easing than the Fed. The euro slid 0.5% to $1.11295, but was not far from a 13-month peak touched at the start of the week. Investors awaited 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. Japan's yen edged further off Monday's three-week high of 143.45 against the greenback, and was last 0.2% lower at 144.30 per dollar. The Australian dollar rose to an eight-month high after data showed domestic inflation slowed to a four-month low in July, but the general progress on tempering price gains disappointed. It slipped marginally to $0.6787. In cryptocurrencies, bitcoin was last down 3.1% at $59,954 after sliding over 6% earlier in trade. (Reporting by Brigid Riley and Sruthi Shankar in Bengaluru; Editing by Miral Fahmy and Mark Potter)