The dollar showed signs of stabilization during early Asian trading hours on Thursday, following an unexpected decline in U.S. factory-gate prices, which bolstered speculation that the Federal Reserve may implement rate cuts in the near future. Traders appeared poised for the release of U.S. consumer price data expected later in the day, further influencing market sentiment.
The dollar index rose slightly to 97.822, marking its third consecutive day of gains. This shift followed the Labor Department’s disclosure that the Producer Price Index (PPI) for final demand had decreased by 0.1% in August, a reversal from the 0.7% increase reported in July, which was subsequently revised down.
“Market positioning indicates a likely easing by the Fed in September with potential for three cuts this year,” remarked Rodrigo Catril, a currency strategist at National Australia Bank in Sydney. He added that the benign outcome of the PPI aligns well with current pricing expectations.
As traders continued to assess the Federal Reserve’s likely course of action, sentiment leaned heavily towards expectations of an imminent reduction in interest rates. According to the CME Group’s FedWatch tool, there is an 8% chance of a larger cut of 50 basis points at the Fed’s upcoming meeting, but a reduction of at least 25 basis points seems almost certain.
In addition to shifts in interest rate expectations, attention turned to recent appointments to the Federal Reserve’s rate-setting panel. The Trump administration announced plans to appeal a federal ruling that temporarily blocks the dismissal of Federal Reserve Governor Lisa Cook. The administration is eager to replace her before the crucial interest-rate-setting meeting next week. Meanwhile, Stephen Miran’s nomination to become a Federal Reserve governor advanced as the Senate Banking Committee voted to move forward with his candidacy, although completion of the process in time for the meeting remains uncertain.
In Asian trading, the dollar held steady against the yen at 147.41, following the release of data indicating that Japanese wholesale prices rose by 2.7% year-over-year in August, a sign of persistent inflationary pressures within Japan’s economy.
Meanwhile, the euro saw a slight uptick to $1.1698 as the European Central Bank prepares for its policy meeting later today, where it is anticipated to maintain current interest rates. Analysts predict a potentially dovish tone from policymakers in light of a challenging trade and political environment across Europe, particularly following recent geopolitical tensions. Poland reported having shot down suspected Russian drones in its airspace, marking a significant military engagement involving NATO allies during the ongoing conflict in Ukraine.
The Australian dollar traded at $0.66165, up by 0.04%, supported by strong performance in commodities such as iron ore, crude oil, and gold, which is nearing record highs. The offshore yuan was also on the rise, trading at 7.1184 yuan per dollar, reflecting a 0.03% increase. In contrast, the kiwi dipped slightly by 0.03% to $0.59375, while sterling remained unchanged at $1.3527 as the day progressed.
