The dollar fell to a one-month low on Tuesday against its major peers after U.S. Treasury yields dropped, reducing the likelihood that the Federal Reserve will increase rates soon. The euro wavered as investors weighed a weaker-than-expected European purchasing managers’ index data.
Investors are looking to a series of economic reports this week that could inform the Fed’s next monetary policy moves. The critical report is due on Thursday, when the personal consumption expenditures price index, the Fed’s favored inflation gauge, will be published. The other extensive report is the August jobs report, due on Friday.
Market participants are worried that the Fed is raising interest rates too fast, risking pushing inflation higher and potentially causing a recession. This concern has led to a flatter yield curve, where longer-term yields have fallen faster than shorter-term ones.
This, in turn, has sparked fears that the Fed will eventually need to back off to prevent a recession or at least slow the pace of rate hikes. As the dollar falls, it bolsters bond prices and yields lower, which is bad news for stocks because it makes profits earned by foreign-based companies that make products in other currencies less valuable.
The pan-European Stoxx 600 index was down 0.2% after the European PMI data, which showed that activity in the Eurozone’s service sector and manufacturing industries fell for a fourth straight month. The data reinforced concerns that Europe’s weakest economy, Germany, is losing momentum and will struggle to avert a recession.
Investors also remained cautious ahead of Federal Reserve chair Jerome Powell’s speech, which is widely expected to signal that the central bank will not raise rates this year. Investors are hoping that Powell will indicate a November pause is in the cards, which has pushed the odds of a rate rise this year to just 24%, according to CME Group’s Fed Watch Tool.
The dollar index, which tracks the U.S. unit against a basket of six currencies, was last up 0.04% at 105.63. It had fallen to 105.35 earlier in the session, its lowest since Sept. 22. The index is down nearly 6% this year and is near its lowest level in more than two years. The dollar was also lower against the yen, supported by intervention in the currency markets from the Bank of Japan (12% of DXY) and the European Central Bank (57%). These interventions are unlikely to reverse the dollar’s slide. But they may buy the currency more time to regain its footing. Save money on your currency transfers with TorFX, voted International Money Transfer Provider of the Year 2016 – 2022. We offer our clients ultra-competitive exchange rates and a dedicated, personalized service whether you trade online or over the telephone. Visit our website to get started.
