The dollar was up against most major currencies on Tuesday, with the notable exception of the yen, which was favored by traders looking for assets deemed safer in a context of market tensions. Around 18:00 GMT, the greenback was up 0.38% against the single European currency, at 1.1029 dollars to the euro. “It’s a day of risk aversion”commented Shaun Osborne, an analyst at Scotiabank, highlighting the volatility in the market.
The movement particularly penalized the most volatile major currencies, notably the Norwegian krone (-1.16% against the dollar), the Australian dollar (-1.19%) and the South African rand (-0.91%). Only the yen, supported by offensive statements from the governor of the Bank of Japan, Kazuo Ueda, stood out against the «greenback»nickname of the dollar.
The operators “are waiting for the employment report (from the US on Friday) to know whether the rate cut (by the US central bank) will be half or a quarter of a point”the analyst continued. The day’s indicator showed that activity in the U.S. manufacturing sector remained in contraction in August, according to the ISM purchasing managers’ organization. It increased from July but less than expected.
Only 114,000 jobs created in the country in July
And according to the ISM report, new orders fell to their lowest level since May 2023. Bill Adams, an analyst at Comerica Bank, said the slowdown in U.S. manufacturing was driven by a backdrop of high interest rates, a strong dollar and uncertainty over the U.S. presidential election. Those numbers, along with mixed data from China, have rekindled fears that the global economy is stalling.
In the process, operators have revised their assumptions regarding monetary policy. They give a 35% probability to a rate cut of half a point at the meeting of the American central bank (Fed), on September 17 and 18. “Judging by Chairman (Jerome) Powell’s comments, the Fed appears open to a half-point cut.”recalled Shaun Osborne. “He didn’t talk about a gradual decrease (in rates) and it’s clear that the Fed doesn’t want to see the job market deteriorate further.”the analyst added. “If we have a figure close to that of July”he warned, “This could be enough to strengthen the hypothesis by half a point”.
A sharper-than-expected decline is theoretically unfavorable for the greenback, but a hiccup in the U.S. economy can also trigger a shift toward assets deemed safer, such as the dollar, as happened Tuesday. The U.S. economy created only 114,000 jobs in July, disappointing the market, which saw it as a sign of weakness in the world’s largest economy.
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