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Dollar Recovers Some Losses Post Weak Economic Report

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The dollar strengthened on Tuesday following an overnight decline to its lowest level versus the euro, sterling, and Swiss franc since mid-March, indicating a slowing U.S. economy supported earlier Federal Reserve interest rate reductions. Later in the day, investors were anticipating U.S. job opening statistics, which might depreciate the dollar’s value and offer insight into the status of the labor market.

The euro rose as high as $1.0916 for the first time since March 21 in the Asian trading session but gave up some ground to stand 0.2% lower at $1.0886. Sterling hit its highest since mid-March, at $1.2818, but was also down 0.2%. As the U.S. currency found footing, the dollar index was up 0.12% at 104.16, having fallen to its lowest since mid-April overnight at 103.99.

The dollar index dropped by roughly 0.6% on Monday after data revealed an unexpected drop in construction spending and a second month of slower manufacturing output. The global head of markets at lender ING, Mr. Chris Turner, stated that “the dollar is starting to show weakness.” “Today’s US JOLTS job openings data could determine whether recent dollar losses are… the start of an important new trend.”

The U.S. job openings and labor turnover survey (JOLTS) is due at 1400 GMT, or 10 a.m. ET, and will show the number of vacancies in May. It will also report on the number of people voluntarily quitting their jobs. “This figure had surged through the pandemic as tight labor markets prompted staff to quit jobs in search of higher pay,” said Turner. 

“This data is seen to have a good lead on wage inflation.”

Japan’s yen bucked the trend on Tuesday and continued to rise against the dollar after climbing on Monday, with the U.S. currency down 0.43% at 155.34, its weakest in two weeks. Bank of Japan Deputy Governor Ryozo Himino said on Tuesday the central bank must be “very vigilant” to the impact the yen’s fluctuations could have on the economy and inflation in guiding monetary policy.

In Europe, the dollar fell 0.2% to its lowest against the Swiss franc since mid-March at 0.8938 francs. Data showed Swiss inflation held steady at 1.4% year-on-year in May. The U.S. currency’s decline against its peers has been driven by investors raising their bets on Federal Reserve rate cuts this year, which have pulled down Treasury yields, making U.S. debt look less attractive.

Markets increased the chances of a rate cut in September to around 59.1% on Tuesday, according to LSEG data on derivatives prices. That compares with odds of around 55% on Friday and slightly below 50% earlier last week. The European Central Bank has telegraphed that policymakers will cut rates at their meeting on Thursday, but a pick-up in inflation in data from the previous week may give officials pause when considering when to ease.

Investors were also keeping an eye on India’s rupee as election results came in, with the currency down on Tuesday amid a lack of clarity about the performance of the alliance led by Indian Prime Minister Narendra Modi.

 

 

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