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Forex - Dollar Slips, Euro Pushes Higher after PMI Data

Published 08/22/2019, 04:01 AM
Updated 08/22/2019, 04:06 AM
© Reuters.

© Reuters.

Investing.com - The dollar slipped lower on Thursday as expectations for further Federal Reserve rate cuts waned, while the euro gained ground after Eurozone private sector data boosted hopes that the bloc’s economy could avoid a recession.

The dollar was down 0.2% at 1.1104 euro by 03:47 AM ET (07:47 GMT) after French and German PMI data for August came in ahead of expectations. But the reports showed that Germany's manufacturing sector remained at recession levels and activity in the service sector slowed.

Against the yen, the dollar slid 0.15% to 106.44, following a 0.36% gain on Wednesday, its biggest since Aug. 13.

Wednesday’s Fed minutes that showed policymakers viewed last month's cut in interest rates as a recalibration not the start of sustained monetary easing, tempering expectations for another rate cut at the central bank’s September meeting.

Investors are now looking ahead to Fed Chairman Jerome Powell's speech at Jackson Hole on Friday for signs of just how far the U.S. central bank is prepared to lower rates.

His comments are of particular interest after an inversion in the Treasury yield curve highlighted the risk that the U.S. economy may fall into recession. While the Fed's minutes tempered some dovish expectations, markets still broadly expect further rate cuts as growth slows.

"Yields are supportive of the dollar for now, but this may not last after Powell's speech," said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.

"Additional rate cuts are thoroughly priced in. If Powell sounds slightly hawkish, stocks could sell off, which would hurt the dollar against safe-haven currencies like the yen."

Fed policymakers were deeply divided over whether to cut interest rates last month but were united in wanting to signal they were not on a preset path to more cuts.

However, this message is not likely to sit well with U.S. President Donald Trump, who has repeatedly bashed Powell for not cutting interest rates more aggressively.

The Fed and other central banks are cutting interest rates to contain a global economic slowdown caused by a prolonged trade war between the United States and China.

The British pound was a touch lower against the euro, on course for its second day of losses, as uncertainty about Britain's divorce from the European Union weighed on sterling.

Against the greenback, sterling edged up to 1.2135.

French President Emmanuel Macron said on Wednesday there would be no renegotiation of the terms for Britain's exit from the EU.

British Prime Minister Boris Johnson is due to meet Macron in Paris on Thursday. German Chancellor Angela Merkel challenged Britain to come up with alternatives to the Irish border backstop within 30 days after meeting Johnson on Wednesday.

Johnson, who won the premiership a month ago, is betting the threat of "no-deal" Brexit turmoil will convince Merkel and Macron that the EU should do a last-minute deal to remove the Irish backstop.

--Reuters contributed to this report

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