TopAsiaFX – The euro fell to a three-week lows against a stronger dollar, as investors reassessed expectations of the size of interest rate cuts expected by the US dollar. Federal Reserve this month.
After a report on non-farm payroll Friday stronger than expected, traders are wondering about “the excessive hopes of dovish” they had for a reduction in the rate of the Federal Reserve, said David Madden, analyst at CMC Markets.
The common currency fell to 1.1206 dollars, its lowest level since mid-June.
The dollar index, which measures the greenback versus a basket of competing currencies, rose 0.1% to 97.488, a three-week high.
Expectations for a 50 basis point cut were reduced to 5.9% from 25% last week. Investors also believe that the Fed’s chances of not reducing rates at the September meeting are higher.
“There were simply also short dollar dollars accumulated before Powell’s testimony,” said Yukio Ishizuki, currency strategist at Daiwa Securities in Tokyo.
However, money markets expect a 94% probability of a 25 basis point cut at the July 31 Fed meeting, according to the CME Group’s FedWatch tool. A week ago, they had a 75% chance of being cut.
Comments from Fed Chief Jerome Powell during the two-day Congressional testimony that begins Wednesday will be monitored to determine whether traders will continue to cut their bets for significant interest rate cuts.
The slowdown in the trade dispute between the United States and China since the G20 summit in Japan has strengthened the strength of the dollar. “The situation has not gotten worse and it’s positive,” Madden said.
Elsewhere, a stronger dollar brought the pound down to $ 1.2480, its lowest level in six months, its lowest level since the January 3 “crash” when the pound fell to $ 1.2409.
“The dollar is rebounding, so there are downside risks for the euro and cable (dollar),” said Masafumi Yamamoto, chief currency management strategist at Mizuho Securities in Tokyo.
Data on the UK’s gross domestic product and industrial output are expected on Wednesday, while the Bank of England will release its financial stability report on Thursday, which could help economic operators determine whether the BoE will adopt a vision. more dovish of the economy.
Last week, Bank of England Governor Mark Carney said a global trade war and an unregulated Brexit were growing risks for the UK economy. This prompted investors to increase their bets on a reduction in the BoE interest rate.
The Turkish lira stabilized after sharp declines caused by the dismissal of the central bank governor by President Tayyip Erdogan over the weekend, a decision that raised concerns about the bank’s independence.
At one point, the lira slipped to a low of two weeks at 5.8245 for a dollar and was last quoted at 5.7335. (Reportage by Olga Cotaga Additional Report by Stanley White in Tokyo Edited by Andrew Heavens)