Greenback Recovers from Annual Low as Markets Anticipate Fed Signals

The dollar gained ground on Wednesday after hitting a year-low against the euro, as traders awaited U.S. employment data revisions and a key speech by Federal Reserve Chair Jerome Powell.

 

The euro had climbed to $1.1132 overnight, its highest level since December, driven by increased bets on Fed rate cuts that pressured U.S. bond yields and weakened the dollar. However, the dollar found some support, bringing the euro down to $1.1113.

 

Analysts have attributed the dollar's earlier weakness to economic concerns and the anticipation of revised U.S. non-farm payrolls data, set to be released by the Bureau of Labor Statistics later on Wednesday.

 

"With inflation slowly converging to target, financial markets are increasingly sensitive to recession concerns, and thus a downward revision of job numbers could bring about another risk-off episode," said Michiel Tukker, senior European rates strategist at ING.

 

Earlier this month, a weak payrolls report had led traders to anticipate a significant Fed rate cut at its mid-September meeting. However, stronger economic data since then has tempered those expectations, with the probability of a larger rate cut now seen at 28%.

 

The U.S. dollar index, which fell to its lowest since January at 101.30 overnight, was last up 0.15% at 101.53.

 

Sterling, which climbed to its highest since July 2023 on Tuesday at $1.3054, was steady at $1.3033.

 

Jane Foley, head of FX strategy at Rabobank, noted that the dollar's earlier decline might be due to thin trading conditions during the summer, with many market participants on holiday. Markets are now focused on Powell's speech at the Jackson Hole summit on Friday for any clues about the size of future rate cuts.

 

In a volatile session, the dollar initially fell 0.21% against the yen to 144.945, before rebounding to 146.09 yen.

 

Traders are also watching Japan’s parliament session on Friday, where Bank of Japan Governor Kazuo Ueda will testify about the central bank's recent interest rate hike and shift to a more hawkish stance.

 

Australia's dollar, which reached a one-month high of $0.6749 on Tuesday, last traded at $0.6739.