Dollar wallows near year-low as traders seek clues on Fed cuts

By Brigid Riley

(Reuters) -The dollar held near its lowest in more than a year against a basket of peers on Wednesday, with sterling trading just off multi-year highs, as markets focussed on clues to the size of a widely expected U.S. interest rate cut next month.

Cryptocurrency bitcoin took the spotlight in Asia, dropping over 4% after breaking below support around $60,000.

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 was last flat at $.06793.

"The Reserve Bank of Australia is unlikely to pivot at the September meeting, which could add another layer of strength for the AUD in the short-term along with cyclical USD weakness and stable global growth dynamics," said Charu Chanana, Saxo's head of FX strategy.

Elsewhere, overall moves in the foreign exchange market were muted as traders awaited fresh hints on the state of the world's largest economy.

Investors are unanimous in bets that the Federal Reserve 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 36% chance for the larger cut, up from 29% a week ago, according to the CME Group's (NASDAQ:CME ) FedWatch Tool.

Markets, which are fully priced for a 25-basis point cut next month, see just over 100 basis points worth 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.

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."

The dollar index , which measures the greenback against a basket of currencies, was last 0.2% higher at 100.78, hovering above a 13-month low of 100.51 hit in the previous session.

For the month, the dollar has fallen 3.4%, putting it on track for its biggest monthly decline since November 2022.

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.

Sterling ticked down 0.14% to $1.3243 after hitting its highest since March 2022 against the greenback at $1.3269 on Tuesday.

The euro slid 0.24% to $1.1156, but was sitting not far from a 13-month peak touched at the top of the week.



The yen edged further off Monday's three-week high of 143.45 against the greenback, and was last 0.23% lower at 144.33 per dollar.

The New Zealand dollar dipped 0.1% to $0.6246. In cryptocurrencies, bitcoin was last down 4.1% at $59,329 after sliding over 6% earlier in trade.

Source: Investing.com