The U.S. dollar fell in early European trade Friday. Weak economic data stoked fears of a sharp slowdown in the world’s largest economy. Therefore, this potential downturn may prompt the Federal Reserve to loosen monetary policy aggressively. At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the U.S. dollar against a basket of six other currencies, traded 0.2% lower at 103.997. This continued the U.S. dollar’s decline after a 1.7% drop in July. Notably, it marked the dollar’s weakest monthly performance this year.
Overnight, data showed that U.S. manufacturing activity contracted at the fastest pace in eight months in July. Moreover, a sharp fall in employment metrics raised the potential for a U.S. recession. This data suggests that the risks to the upcoming payroll report are to the downside. Consequently, economists expect the U.S. economy to have created 177,000 jobs in July, down from 206,000 in June. The unemployment rate is expected to hold steady at 4.1%.
In Europe, GBP/USD slipped 0.1% to 1.2734 after falling to 1.2708 earlier, the lowest since July 3. This decline followed the Bank of England’s decision to cut interest rates by a quarter-point to 5%. BoE Governor Andrew Bailey led a 5-4 decision, signaling a cautious approach to future reductions.
Additionally, EUR/USD rose 0.3% to 1.0820, recovering from a three-week low of 1.0777. Data released Thursday showed that eurozone manufacturing activity remained in contraction territory in July. Thus, it suggests the European Central Bank may need to cut rates again this year to stimulate the slowing economy.
In Asia, USD/JPY fell 0.3% to 148.84. The yen surged after the Bank of Japan hiked rates by 15 basis points and indicated potential further hikes in 2024. Furthermore, USD/CNY fell 0.5% to 7.2071. The yuan weakened as weak PMI data heightened concerns over an economic slowdown.
Overall, the U.S. dollar’s recent performance indicates growing market anxiety over a potential economic downturn. This highlights the importance of upcoming economic reports.
