By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) – The U.S. dollar rose for a second straight session on Thursday after data showed the world’s largest economy grew slightly faster than expected in the second quarter, modestly forecasting expectations for a bigger 50 basis points (bp) rate cut were lowered next month by the Federal Reserve.
The report also added to growing expectations that the United States could avoid a recession altogether or experience only a mild one, analysts said.
After the US data, the dollar rose against the yen to a one-week high of 145.55, and was last up 0.1% at 144.77 yen. The dollar/yen pair is the most sensitive to economic expectations and typically moves in tandem with two-year U.S. Treasury yields.
Against the euro, the dollar gained, with the common European currency down 0.4% to $1.1077. So far this week, the euro has fallen 1.04%, the biggest weekly drop since early April.
Thursday’s data showed gross domestic product (GDP) grew at an annual rate of 3.0% in the second quarter, according to the Bureau of Economic Analysis’ second estimate. That was an upward revision from the 2.8% rate reported last month, and higher than the 1.4% increase in the first quarter. Economists polled by Reuters had forecast GDP would remain unchanged at 2.8%.
In a separate report, jobless claims fell by 2,000 to a seasonally adjusted 231,000 for the week ending August 24. Economists polled by Reuters had forecast 232,000 claims for the week.
The number of people receiving benefits after a first week of aid, an indicator of hiring, rose by 13,000 to a seasonally adjusted 1.868 million, close to late 2021 levels, indicating persistent unemployment.
“The data so far seems consistent with a cut of 25 basis points, not 50 as we always thought,” said Vassili Serebriakov, currency strategist at UBS in New York.
U.S. interest rate futures on Thursday priced in a 35% chance of a 50 basis point easing next month, slightly lower than Wednesday’s 37% probability, LSEG calculations showed. Markets also anticipated a cut of around 102 basis points by the end of 2024.
The increase of 0.3% to 101.35 follows from the report on GDP and unemployment claims. This week, the stock is up 0.6%, which is on track for the biggest weekly gain since early April.
MONTH END FLOWS
“There has been a better bid for the dollar… due to month-end flows. We will likely see a continuation of this,” said Brad Bechtel, global head of FX, at Jefferies in New York.
“The dollar index is oversold as it fell below 101. I would expect us to migrate back to the 103-104 area. But the labor market report will be key to that.”
As the end of the month approaches, investors tend to double down on their positions, so that when an asset is sold for the month, such as the dollar, they would normally buy it back to balance their books or portfolios.
In August, the dollar lost 2.7% of its value, on track for the biggest monthly decline since November 2023.
“We felt the dollar sell-off was overextended… and the reasons are understandable given the Fed’s closeness to cuts,” UBS’ Serebriakov said.
Investors are now awaiting Friday’s release of the U.S. core personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, which could provide more clues to the size of September’s rate cut, including the pace of the coming easing cycle.
In the euro zone, the euro fell to a 10-day low of $1.1059 after hitting a 13-month high of $1.1201 on Friday. The euro was undermined overall by inflation data from Germany and Spain, which raised expectations for interest rate easing by the European Central Bank. Data showed inflation fell in six key German states in August, suggesting national inflation could fall noticeably this month. In Spain, the pace fell to the slowest pace in a year.
Money markets have priced in a 2024 ECB cut of 67 basis points, compared to around 63 basis points before the data.
Currency
bid
prices at
29
August
06:58
pm GMT
Description RIC Last US Pct YTD Pct High Low
at Close Change bid
Last
Session
Dollar 101.34 101.01 0.33% -0.03% 101.58 100.
index 88
Euro/pop 1.1079 1.112 -0.37% 0.37% $1.114 $1.1
am 056
Dollar/Year 144.77 144.64 0.06% 2.61% 145.53 144.
no. 225
Euro/yen 1.1079 160.76 -0.22% 3.06% 161.26 160.
04
Dollar/SW 0.846 0.8423 0.46% 0.54% 0.8493 0.84
is 01
Sterling/ 1.3169 1.3191 -0.18% 3.47% $1.3227 $1.1
Dollars 056
Dollar/Approx. 1.3475 1.3481 -0.03% 1.66% 1.3491 1.34
nadian 51
Australia/Thurs 0.6797 0.6785 0.2% -0.29% $0.6824 $0.6
lar 781
Euro/Swiss 0.9372 0.9365 0.07% 0.93% 0.94 0.93
s 54
Euro/Star 0.8411 0.8428 -0.2% -2.96% 0.8434 0.84
ling 03
New Zealand 0.6259 0.6246 0.22% -0.95% $0.6298 0.62
Dollar/Do 42
llar
Dollar/No 10.505 10.4951 0.09% 3.65% 10.5353 10.4
line 645
Euro/Norwegian 11.6376 11.6732 -0.3% 3.69% 11.6971 11.6
yes 245
Dollar/SW 10.2289 10.1832 0.45% 1.61% 10.265 10.1
Eden 677
Euro/Sweden 11.333 11.3347 -0.01% 1.88% 11.3603 11.3
en 109
