The dollar's retreat continued from Wednesday’s losses. This followed the release of softer-than-expected ADP employment figures and a weak purchasing managers index (PMI) reading on non-manufacturing activity. Consequently, this data heightened expectations that a cooling U.S. economy will persuade Fed officials to consider interest rate cuts soon.
According to the CME Fedwatch tool, traders are now pricing in a nearly 66% chance of a September rate cut. This is up from 59% the day before. Analysts at ING suggest that some reluctance to price in more easing is due to the rising chances of Donald Trump winning the U.S. presidency in November. Trump's protectionist and tax-cut policies could potentially slow Fed easing.
Sterling edged higher as the UK went to the polls for a general election. GBP/USD rose 0.2% to 1.2759. The opposition Labour Party is expected to end 14 years of Conservative power. Latest polls give Labour a significant lead, therefore ING analysts noted minimal risks for the pound ahead of the vote and opinion polls strongly favor a Labour majority.
EUR/USD rose 0.1% to 1.0794, benefiting from the dollar's weakness. However, the euro's gains are tempered by regional political uncertainty. The European Central Bank (ECB) officials emphasized patience, indicating no rush for back-to-back rate cuts. The euro has fallen over 1% since French President Emmanuel Macron called for a snap election, so it created market uncertainty ahead of Sunday's run-off election.
In Asia, USD/JPY traded 0.3% lower to 161.21 after nearly crossing the 162 level on Wednesday. Japanese officials have reiterated their commitment to defend the yen. This has kept traders on alert for potential intervention during low trading volumes on the July 4 U.S. market holiday.
USD/CNY remained largely unchanged at 7.2701. It stayed close to seven-month highs amid waning confidence in the Chinese economy.
Dollar slips in early European trade Thursday due to weak economic data raising expectations of Fed rate cuts.
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