The dollar weakened on Thursday as investors braced for a possible announcement or statement from the Federal Reserve at this week’s Jackson Hole, Wyoming event that would help address the worsening global economic outlook.
Market participants expect the Fed announcement could be a stimulus measure, or an affirmation that the U.S. central bank is on a steady path to ease interest rates, a scenario viewed as negative for the dollar.
Fed Chairman Jerome Powell will speak on Friday and expectations are building that he will clarify Fed minutes released on Wednesday and deliver a dovish speech that would soothe market worries about the prospect of recession.
The Fed’s latest minutes confirmed a growing view that U.S. policymakers are reluctant to begin a big rate-cutting cycle in the coming months, describing the July easing as a mid-cycle adjustment. The minutes showed policymakers were divided over whether to cut interest rates but united in wanting to signal they were set on more cuts.
“Jackson Hole is going to provide an opportunity for the Fed to correct that communication mistake in the minutes,” said Edward Moya, senior market analyst at OANDA in New York. “With the rest of the world going negative in interest rates, the risk is for that scenario to happen in the U.S. and if we don’t see the Fed become a little more aggressive through no fault of the U.S. economy, but more because of the rest of the world, they could see more pressure to deliver rate cuts,” he added.
In morning trading, the dollar slipped 0.1% against a basket of major currencies to 98.218. The greenback also fell against the yen as well, down 0.2% at 106.37 yen, not far from last week’s eight-month low around 105.05.
The euro, meanwhile, edged higher against the dollar, up 0.1% at $1.1097, amid an uptick in euro zone business growth. Euro zone business growth picked up in August, as services expanded and manufacturing contracted at a slower pace. But trade war fears knocked future expectations to their weakest in over six years, a survey showed.
“Though the eurozone PMI data was slightly better than expected, it is fairly gloomy stuff and there is some degree of concern among investors about the Chinese yuan’s decline,” said Neil Mellor, a senior FX strategist at BNY Mellon in London.
Investors also sold Asian currencies after the Chinese yuan fell to an 11-year low against the dollar, indicating trade tension between the world’s two biggest economies remained a major issue.
In onshore trading, the yuan fell to 7.0752 per dollar, its weakest since March 2008, before recovering to 7.0732. In offshore trade, the dollar rose 0.29% to 7.0872 yuan.