(London) The US dollar continued its uncontrolled slide on Wednesday, shaken by a bad indicator, witnessing a less lively American economy than imagined, increasing the probability of a series of rate cuts in the near future.
By 4 p.m. ET, the greenback was down 0.21 percent against the single currency, at $1.1154 to the euro. It was also down 0.43 percent against the British currency, at $1.3090 to the pound sterling.
Earlier, 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 “buck” lost altitude 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 worse shape than expected,” said Jeffrey Roach of LPL Financial. “This weakness could pave the way for the Fed [banque centrale américaine] lowers 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 a reduction would contrast with the usual calibration of rate changes, which are traditionally done in quarter-point increments.
The impression was confirmed by the minutes of the last meeting of the Fed’s monetary policy committee, also published on Wednesday.
It suggests, according to Ryan Sweet of Oxford Economics, that “the debate is no longer whether the central bank will cut rates in September, but how vigorously.”
According to the minutes, a “vast majority” of committee members felt that it would be appropriate to cut the key rate if the indicators were to follow the trend recently observed.
“More advantage”
The market is awaiting speeches from the various central bankers who will be present at the symposium in Jackson Hole, Wyoming, starting Thursday. Fed Chairman Jerome Powell is scheduled to speak on Friday.
“Less than four weeks until the next meeting [de la Fed]September 17 and 18, is the ideal time to give one’s assessment of recent economic developments, which have given rise to strong concerns in the markets, notes Philip Marey of Rabobank.
“The market is increasingly convinced that inflation is over [élevée] and that the Fed can gradually bring rates back to 3%,” from a range of 5.25% to 5.50% currently, explained Adam Button of ForexLive.
“And when we get there, the United States will no longer have any particular advantage in terms of interest rates,” he continues, while they have benefited, for months, from bond yields among the highest in industrialized countries, which has massively attracted currency traders and investors in general.
For Adam Button, this is compounded by the breakthrough in the polls of Democratic presidential candidate Kamala Harris. “This makes the hypothesis of a lack of a majority in Congress more likely,” he describes.
“If this were to happen, some of the economic support measures would expire” without being extended by American parliamentarians, “which would penalize growth” in the United States, according to Adam Button.
“We continue to believe that the market has once again gotten carried away by pricing in the idea of forced monetary easing,” said analysts at Brown Brothers Harriman.
“Those speculating against the dollar could be caught off guard by a possible less accommodating communication than expected from Jerome Powell on Friday,” they warned.
“We continue to believe that the divergence of economic trajectories [entre les États-Unis et les autres économies développées] remains relevant,” assures Brown Brothers Harriman, “and should continue to support the dollar.”