Investing.com – The U.S. dollar rose modestly in early European trading on Thursday, recovering from weighty losses in the previous session after the Federal Reserve decided to cut interest rates in September, while the British pound weakened ahead of the Bank of England’s latest monetary policy meeting.

At 05:45 ET (09:45 GMT), the dollar index, which tracks the U.S. currency against a basket of six other currencies, was up 0.3% at 104.154, after falling 0.4% on Wednesday.

The index fell by 1.7% in July, which was the weakest monthly result this year.

Dollar limits Fed-related losses

In line with general expectations, the two-day meeting of the Monetary Policy Council on Wednesday kept interest rates unchanged, which also indicates the upcoming easing of monetary policy.

The US Federal Reserve chairman noted that while inflation remains “slightly” above target, upside risks have declined and downside risks to the labour market are rising.

Powell’s comments “suggest the bar is not set too high” for a September rate cut, economists at Goldman Sachs said.

“We continue to expect July inflation data to be favorable (we forecast 21bps for core CPI and 19bps for core PCE) and think even acceptable news is likely to prompt a rate cut in September,” Goldman economists added.

The July report is due to be published on August 14.

There is a slew of economic data due on Thursday, including weekly data for June and July, but the most critical thing right now is Friday’s release of the highly anticipated monthly report.

It is expected to show that the U.S. economy added 177,000 jobs in July, down from 206,000 the previous month. The rate, which has risen in each of the past three months, is expected to hold steady at 4.1%.

Pound falls ahead of BOE meeting

In Europe, the rate fell 0.7% to 1.2767, with the British pound depreciating sharply ahead of a meeting later in the session.

There is much uncertainty surrounding the decision as key central bank officials have not spoken publicly for more than two months due to the upcoming UK general election in July.

The UK returned to the BOE’s 2% target in May and maintained it in June, suggesting a rate cut on Thursday is quite possible.

In June, the MPC voted 7-2 to keep interest rates unchanged, but the minutes of the meeting noted that many of those who voted to keep rates steady came close to voting to cut them.

fell 0.4% to 1.0783 after data showed euro zone manufacturing activity continued to slip into recession in July, suggesting the European Central Bank will have to cut interest rates again this year to stimulate the slowing economy.

The final HCOB score from S&P Global came in at 45.8 in July (from June), just above the preliminary estimate of 45.6.

It has remained below the 50-point threshold separating growth from recession for more than two years.

The yen rose sharply in July

In Asia, the yen fell 0.2% to 149.66, with the yen strengthening as the Bank of Japan raised interest rates to levels not seen in 15 years and the Fed cut interest rates on falling U.S. inflation.

The yen rose 7% in July, its best monthly performance since November 2022, after starting the month near a 38-year low, largely due to interventions by Japanese authorities that totaled $36.8 billion.

rose 0.3% to 7.2432 after data showed an unexpected recession in China’s manufacturing sector, following the release of faint government PMI data earlier in the week.

The readings raised concerns about a broader slowdown in China’s biggest economic engines and further soured sentiment toward the country. They also prompted more calls for stimulus measures from Beijing.