2024-08-21 20:50:33
By Thomas URBAIN with Emeline BURCKEL in London
The dollar continued its uncontrollable slide on Wednesday, shaken by a bad index, witnessing a weaker-than-expected US economy, increasing the possibility of a series of rate cuts in the short term.
Around 8:00 pm GMT, the greenback lost 0.21% against the dollar, at 1.1154 dollars per euro. It also lost 0.43% against the British currency, at 1.3090 dollars per pound.
Previously, the “greenback” fell to its lowest level since July 20, 2023 against the euro and since July 18 of the same year against the pound.
The currency lost its high after the publication of a report from the US Department of Labor. The latter revealed that, from April 2023 to March 2024, the American economy had created 818,000 fewer jobs than initially announced.
“The labor market appears to be in less healthy health than expected,” said Jeffrey Roach of LPL Financial. “This weakness could pave the way for the Fed (US central bank) to reduce its key rate by half a point in September.”
Operators now give this scenario a probability of almost 40%, compared to only 3% a month ago. Such reduction will be contrasted with the regular renewal of rate changes, which are customary by quarter points.
The commitment was confirmed by the minutes of the latest meeting of the Fed’s monetary policy committee, which was also published on Wednesday.
It suggests, according to Ryan Sweet of Oxford Economics, that “the attempt is not whether or not the banking system will reduce its rates in September, but to decide with what power.”
According to the report, “very many” of the committee members have considered that it would be appropriate to reduce the key rate if the indicators follow the trend observed recently.
– “More opportunities” –
The market is waiting for words from several central banks that will be present at the conference in Jackson Hole (Wyoming), starting on Wednesday. Fed Chairman Jerome Powell is scheduled to speak on Friday.
“Less than four weeks before the next meeting (of the Fed), on September 17 and 18, is the best time to give your opinion of recent economic developments, which have caused strong concerns on products, notes Philip Marey of Rabobank.
“The market is convinced that (high) inflation is over and the Fed can reduce its rates to 3%”, compared to the current range of 5.25% to 5.50%, explained Adam Button of ForexLive.
“And when we get there, the United States will not have a particular advantage in terms of interest rates,” he continued, while they have benefited, for months, from yields that are among the highest in the world among the countries of massive production in the interest of foreign exchange traders and investors in general.
For Adam Button, add to this the success in the polls of Democratic presidential candidate Kamala Harris. “This makes the hypothesis that we lack a majority in Congress more likely,” he explained.
“If this is material, some measures to support the economy will end” without being extended by American lawmakers, “which will be a growth penalty” in the United States, according to Adam Button.
“We continue to think that the market has been moved, once again, by integrating the concept of forced monetary easing,” said analysts at Brown Brothers Harriman.
“Those speculating against the dollar may be surprised by a less than expected speech from Jerome Powell on Friday,” they warned.
“We continue to believe that the difference in economic trajectories (between the United States and other developed economies) remains significant,” assured Brown Brothers Harriman, “and should continue to be supported per dollar.”
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