Dollar Weakens to Five-Week Losing Streak Amid Rate cut Expectations
The U.S. dollar experienced its fifth consecutive week of declines, marking its longest losing streak since April 2023, following a weaker-than-expected jobs report. The Bloomberg Dollar spot Index fell as much as 0.7% on Friday, bringing the dollar’s year-to-date loss against a basket of global currencies to over 8%.
The shift in sentiment occurred instantly after the release of the jobs data, prompting traders to increase bets on Federal Reserve interest rate cuts. Some market participants are now anticipating a potential half-point reduction.”After this report, markets will likely be priced dovishly for the Fed path,” explained Jayati Bharadwaj, a strategist at TD Securities. She added, “We maintain a bearish dollar structural view with an eye out for near-term bounce.”
This bearish trend is accelerating as traders anticipate a return to monetary easing by the Fed.Friday’s payroll numbers reinforced this expectation, alongside concerns regarding fiscal risks and potential tariffs from former President Donald Trump, all contributing to downward pressure on the dollar.
Brad Bechtel, global head of FX at Jefferies, stated, ”Today’s report was not great and just adds fuel to the fire of the idea that the Fed is slipping well behind the curve.” He continued, “Market expectations for more rate cuts makes sense and next week’s inflation report is likely make or break on the dollar.”
The upcoming inflation report, scheduled for release on thursday, is crucial. Bloomberg estimates predict a rise in august inflation after it remained steady at 2.7% in both June and July. A spike in inflation could alleviate pressure for rate cuts, while continued stability or a decrease could prompt the Fed to act.
Speculative positioning reflects this anticipation, with net short positions on the dollar reaching $5.6 billion as of the week ending August 26, according to Commodity Futures Trading Commission data. These short positions have been consistently negative since April and are growing in size.
On Friday, major currencies broadly gained against the dollar, with the yen and Swiss franc both rising approximately 1%.
Adding to the downward pressure across North America,Canada’s loonie also weakened after the country reported job losses for the second consecutive month,increasing the likelihood of rate cuts by the Bank of Canada.
Disclaimer: For information purposes only. Past performance is not indicative of future results.
