Investing.com – The U.S. dollar weakened on Thursday as investors began to factor in the Federal Reserve’s aggressive monetary easing efforts to combat the economic slowdown.
As of 04:10 ET (09:10 GMT), the dollar index, which tracks the U.S. currency against a basket of six other currencies, was down 0.2% at 102.802, just off Monday’s seven-month low.
Dollar outpaces jobless claims
Last week’s disappointing data dispelled fears that the U.S. economy was headed toward a recession, likely forcing it to cut interest rates sooner than initially expected.
JPMorgan raised the probability of a U.S. recession by the end of this year to 35% from 25% previously, citing easing pressures in the labor market.
This has led to markets pricing in a 100% probability of the Federal Reserve cutting interest rates by 50 basis points in September, according to CME’s FedWatch tool.
There was talk earlier this week of the possibility of an emergency rate cut ahead of the September meeting, though the perceived likelihood of such an event has since declined as markets have stabilised somewhat.
On Thursday we will get more data from the labor market in the form of weekly reports, and next week the US report for July will be published, and the week after that the Central Bank’s Economic Policy Symposium will be held.
Euro is growing slightly
In Europe, the rate rose 0.2% to 1.0940, weighed down by a faint dollar and a lack of economic data that could affect prices.
The interest rate cuts began in June and many expect policymakers to agree to a cut as early as September.
The ECB may continue to cut interest rates if confidence in a slowdown in inflation increases in the near future, Finnish ECB policymaker Olli Rehn said in a speech on Wednesday.
“Inflation continues to slow, but the path to the two percent target remains bumpy this year,” Rehn said.
rose 0.1% to 1.2700, holding close to a one-month low reached on Tuesday.
Bank of England data is due later in the session and could provide more clues about the reasons behind the central bank’s decision to cut interest rates last week.
Yen gains as carry trade weakens
In Asia, the index fell 0.3% to 146.19, having gained 1.6% on Wednesday after Bank of Japan Deputy Governor Shinichi Uchida downplayed the risk of a near-term rate hike.
The pair fell sharply to a seven-month low of 141.67 earlier in the week as last week’s unexpected rally prompted investors to exit carry trades, in which investors borrow yen at low interest rates to invest in dollar-denominated assets for higher returns, helping to boost the yen’s value.
About three-quarters of global carry trade has been withdrawn, JPMorgan strategists said in a note on Wednesday.
In its latest report, JPMorgan noted that the risk-reward ratio for global carry is low due to the upcoming US election and the potential for investors to re-price themselves on lower US interest rates.
fell 0.1% to 7.1683, after a series of stronger-than-expected mid-rate corrections helped the currency weather mid-market trade data released on Wednesday.
rose 0.7% to 0.6559, with the Australian dollar gaining after RBA Governor Bullock said the bank would not hesitate to raise interest rates in the face of higher inflation risks.
