Dollar Rebounds from Yearly Low as Investors Await Powell’s Speech

The U.S. dollar edged up on Wednesday after touching its lowest level against the euro this year, as traders awaited key U.S. employment data revisions and remarks from Federal Reserve Chair Jerome Powell.

 

The euro had risen to $1.1132 overnight, its highest since December, as expectations of Fed rate cuts pressured U.S. bond yields and weakened the dollar. However, the dollar found some support, pushing the euro down to $1.1113.

 

Market analysts pointed to concerns about the economy and the anticipated revision of U.S. non-farm payrolls data, expected later on Wednesday from the Bureau of Labor Statistics, as reasons for the dollar's earlier weakness.

 

"With inflation gradually aligning with targets, financial markets are increasingly alert to recession risks, and a downward revision in job numbers could trigger another risk-off episode," said Michiel Tukker, senior European rates strategist at ING.

 

Earlier this month, a disappointing payrolls report had led to speculation that the Fed might cut rates significantly at its mid-September meeting. However, stronger economic data since then has reduced those expectations, with the probability of a larger rate cut now seen at 28%.

 

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

 

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

 

Jane Foley, head of FX strategy at Rabobank, noted that the dollar's earlier decline might be due to thin trading conditions with many market participants on summer vacation. Markets are now focused on Powell’s speech at the Jackson Hole summit on Friday for any clues about 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 hit a one-month high of $0.6749 on Tuesday, last traded at $0.6739.