Dollar slumps ahead of payrolls revisions, Powell speech

By Karen Brettell

NEW YORK (Reuters) – The dollar fell to its lowest level since January on Tuesday as investors awaited revisions to U.S. payrolls data on Wednesday and Federal Reserve Chair Jerome Powell’s speech to the Jackson Hole economic conference in Wyoming later in the week.

Traders are speculating the revisions to the U.S. government’s jobs data could show that between 600,000 and 1 million fewer jobs were created from April 2023 to March 2024.

A downward revision of 1 million jobs would reduce employment creation to 1.6 million jobs for the year, from 2.6 million, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

“That’s why I think that the market is still pricing in about a 25% chance of a 50-basis-point cut in September,” Chandler said. “People thought the Fed was behind the curve in raising rates, and now many people think the Fed is behind the curve in cutting rates.”

Traders have reduced bets that the Fed would cut its benchmark overnight interest rate by half a percentage point at its Sept. 17-18 meeting following hotter-than-expected shelter inflation and strong retail sales in July.

Data showing the job market was weaker than previously thought could increase concerns the U.S. economy is facing a potentially worse downturn than the current expectation for a “soft landing” in which inflation is tamed without a recession.

Traders in early August aggressively priced for imminent rate cuts after weaker-than-anticipated job growth and an unexpected increase in the unemployment rate in July raised concerns about a possible recession.

A 25-basis-point rate cut in September is seen as having about a 75% probability, according to CME Group’s FedWatch Tool. Traders are pricing in around 220 basis points of cuts by the end of 2025.

Traders will focus on comments by Powell on Friday at the Kansas City Fed’s Jackson Hole economic symposium for any new clues on the likely size of a rate cut next month, and whether reductions in borrowing costs are likely to happen at each subsequent Fed meeting.

With the government due to release the August employment report and key inflation data before the Fed’s next meeting, Powell may be reluctant on Friday to offer much clarity on the outlook for rates.

A slim majority of economists polled by Reuters expect the Fed will cut interest rates by 25 basis points at each of its remaining three meetings of 2024.

The Fed is also due to release the minutes from its July 30-31 meeting on Wednesday.

STRONGER YEN

The dollar index was last down 0.22% at 101.65, having reached 101.62, its lowest level since Jan. 2. The euro rose 0.14% to $1.1101 and climbed as high as $1.1105, its strongest level since Dec. 28.

Sterling strengthened 0.27% to $1.3023 and reached $1.3030, the highest level since July 17.

The dollar weakened 0.33% to 146.09 Japanese yen after reaching 145.20 on Monday, the lowest level since Aug. 7.

Bank of Japan Governor Kazuo Ueda is expected to discuss the BOJ’s decision last month to raise interest rates when he appears in parliament on Friday.

Data next week is expected to show that Japan’s consumer inflation rate picked up in July for a third consecutive month, a Reuters poll of 18 economists showed, keeping the central bank on course to consider another rate hike after lifting short-term rates to 0.25% last month.

Sweden’s crown rose despite a rate cut by the Swedish central bank. It also said it could speed up the policy easing if price pressures did not pick up.

It was last up 0.72% versus the dollar at 10.253 and reached 10.249, the strongest level since March 14.

In cryptocurrencies, bitcoin gained 3.08% to $60,916.00.

(Reporting by Karen Brettell; Additional reporting by Stefano Rebaudo; Editing by Paul Simao)