Investing.com – The US dollar rose higher in early European trading on Wednesday, but remains near a seven-month low as minutes from the latest Federal Reserve meeting and likely payroll data revisions will point to a rate cut in September.
At 05:20 ET (09:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% higher at 101.370, after earlier falling to its lowest level since January 2 .
In each of the previous three sessions it had fallen 0.5% or more.
The dollar weakens ahead of Fed minutes and payroll review
The dollar has been under pressure and fell more than 2% last month, with U.S. bond yields falling to more than a year low after surprisingly soft monthly jobs data stoked fears of a recession.
This puts the revised figures, which will be released later Wednesday, firmly in focus, with the potential for a significant downward revision weighing heavily on the dollar.
Figures from the Fed’s late July meeting will also be released later in the session, and traders will look for prospects of the Fed cutting rates at its mid-September policy meeting.
The Fed has maintained its benchmark interest rate within the current range of 5.25%-5.50% since July last year.
Nomura predicts continued weakness in the US dollar, with this outlook driven by several macroeconomic factors, positioning adjustments and portfolio shifts, which are expected to put downward pressure on the dollar in the coming months.
Euro on track for a strong month
In Europe, it traded 0.1% lower at 1.1120, just off a high of 1.1133, the highest since December 28.
The common currency is up more than 2% this month and is on track for its strongest monthly performance since November.
Nomura expects a narrowing of the growth gap between the US and Europe, which has been a key factor in the dollar’s strength.
“This is likely to support EUR/USD, while our discussions with market participants concluded that there are positioning risks towards higher EUR/USD if the spot breaches recent highs of 1.1139 in December 2023 (and 1.1276 in July 2023; last at 1.1077). ‘, the Nomura analysts said.
traded 0.1% lower at 1.3020, just below the previous session’s high of 1.3054, a level last seen in July last year.
Data released earlier Wednesday showed UK government borrowing rose more than expected in July, with net public sector debt reaching £3.1 billion last month, £1.8 billion more than a year ago and the highest borrowings in July since 2021.
Traders are divided over the chances of another rate cut by the BoE in mid-September, after it launched a rate-cutting campaign in a close call decision earlier this month.
The Yen is making some gains
In Asia, yields rose 0.5% to 146.01, but remained well below the peak of 160 earlier this year.
USD/JPY had fallen as low as 141 earlier in August after carry trading in the yen was largely halted by aggressive signals from the Bank of Japan. Rising Japanese yields are expected to support the yen and further undermine the yen carry trade in the coming months.
trading mostly flat at 7.1326, after a slightly stronger midpoint fix from the People’s Bank. The central bank had also left its key lending interest rate unchanged on Tuesday.
