The dollar neared an eight-week low as investors awaited the release of a crucial U.S. jobs report that would provide insights into the timing of potential Federal Reserve interest rate cuts. The U.S. dollar index, which tracks the currency against major rivals, remained stable at 104.13, close to its recent low of 103.99. This decline followed weaker macro data that fueled speculations of two quarter-point Fed rate cuts this year. Market participants are anticipating a softer non-farm payrolls report, with expectations that job growth could fall below the median forecast of 185,000 economists.
Although the Federal Open Market Committee is unlikely to make immediate changes at its upcoming meeting, markets are pricing in a 50 basis points cut by the end of December, with the first cut potentially occurring in September. While some analysts believe that the U.S. labor market remains robust, others suggest that a slight pullback in job numbers could delay the timing of the rate cut, thereby providing support for the U.S. dollar in the short term.
On the European front, the euro retained its gains following the European Central Bank’s decision to reduce rates in a well-anticipated move. However, the ECB provided limited guidance on future easing measures due to concerns about persistent inflation levels. Despite lowering rates by a quarter point, the ECB raised its inflation forecasts, projecting that inflation would surpass the 2% target until late next year. This ambiguity surrounding the ECB’s monetary policy has contributed to the euro’s stability against the dollar.
Sterling remained relatively unchanged at $1.2792, close to its recent high of $1.2828, the strongest level since mid-March. Conversely, the dollar edged higher against the yen to 155.85 but was on course for a weekly decline of nearly 1%. Market participants are also closely monitoring the Bank of Japan’s policy decision, with growing consensus for a potential reduction in the monetary authority’s monthly government bond purchases.
The release of the U.S. jobs report will have significant implications for the dollar and euro movements in the coming days. While uncertainty prevails in the market regarding the Federal Reserve’s interest rate cut timeline, central bank policies and economic data releases will continue to drive currency fluctuations in the near term. Investors should closely monitor these developments to make informed decisions in the ever-changing foreign exchange market.