Dollar rebounds after hefty losses; euro, sterling slip

The U.S. dollar rose Tuesday, reversing some of the recent losses as a degree of calm returned to the foreign exchange markets.  

At 06:20 ET (10:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% higher to 102.907, after falling to a seven-month low on Monday.  Dollar rebounds after hefty losses

The dollar has been hit hard of late by fears of a U.S. recession after a batch of weak readings on the labor market, which ramped up bets that the Federal Reserve will have to cut rates more than initially expected.

Traders now expect 110 basis points of easing this year from the Fed, pricing in an 80% chance of a 50 bps cut in September, after having fully priced in a 50 bps cut on Monday.

U.S. central bank policymakers pushed back on Monday against the notion that weaker-than-expected July job data means the economy is in recessionary freefall, but also warned that the Federal Reserve will need to cut rates to avoid such an outcome.

“Jobs numbers come in weaker than expected, but not looking yet like recession," said Chicago Federal Reserve President Austan Goolsbee . "I do think you want to be forward-looking of where the economy is headed for making the decisions." Euro, sterling hand back some gains

In Europe, the dollar gained ground against both the euro and sterling, with the European Central Bank and the Bank of England having already started cutting interest rates to stimulate their respective economies. 

EUR/USD fell 0.4% to 1.0911, having hit a seven-month high of 1.1009 on Monday, with data showing that retail sales fell 0.3% in June in the eurozone, suggesting consumers remained stretched.

On the flip side, German industrial orders rose by more than forecast in June, rising by 3.9% on the previous month, providing a glimmer of hope for Europe's largest economy.

GBP/USD slipped 0.5% to 1.2706, handing back some of its recent gains as the dollar strengthened.

The Bank of England cut interest rates last week, reducing the benchmark rate by a quarter-point to 5%. Yen slips for first time in August 

In Asia, USD/JPY rose 0.2% to 144.47, with the yen weakening for the first day this month, consolidating after the striking moves of recent days.

The yen had benefited from increased safe haven demand as broader financial markets crashed. Hawkish signals from the Bank of Japan - which raised interest rates and flagged more hikes - also boosted the currency, as did an unwinding carry trade. 

USD/CNY rose 0.3% to 7.1504, with the yuan weakening in anticipation of key trade and inflation data this week.

AUD/USD fell 0.2% to 0.648, with the Aussie dollar slipping after comments from Reserve Bank of Australia Governor Michele Bullock, who suggested rate cuts were still further away.

Australia's central bank held interest rates steady on Tuesday as expected, while reiterating that it was not ruling anything in or out to control inflation.

 

 

Source: Investing.com