Dollar wobbles on growing bets on a huge Fed rate cut by Reuters

By Rae Wee

SINGAPORE (Reuters) – The dollar fell on Thursday as traders stepped up bets on an excessive rate cut from the Federal Reserve later this month, with the yen a notable performer in safe-haven demand as concerns about the growth prospects of the American economy have resurfaced.

Global markets were on edge and stocks in particular were hit hard after softer-than-expected U.S. data this week reignited concerns that the outlook for growth in the world’s biggest economy is less better than previously thought and that the labor market may be slowing more sharply than expected.

That sent investors fleeing risky assets in search of safety, with the yen one of the biggest beneficiaries.

The Japanese currency was 0.26 percent stronger at 143.56 per dollar, having already gained nearly 2 percent in the week so far.

The Swiss franc, also a traditional safe-haven currency, held steady at 0.8461 per dollar, although its 0.46% gain for the week to date was more subdued compared to the yen’s rise.

“The markets are getting worried,” said Hemant Mishr, chief investment officer at S CUBE Capital in Singapore.

“There was a time when markets only focused on positive news. There is a perceptible shift, the market is now focusing on negative news and rationalizing selling.”

Data released Wednesday showed U.S. job openings fell to a 3½-year low in July, suggesting the labor market is losing steam, with the numbers coming after Tuesday’s ISM manufacturing survey remained in territory of contraction.

“Jobs data for July showed little sign that the continued slowdown in the labor market is coming,” Wells Fargo economists said in a note. “For the Fed, the data reaffirms that the labor market is no longer a source of inflationary pressure on the US economy.”

Investors have recently given increased weight to any data on the health of the US labor market, given the Fed’s focus on protecting it.

The US dollar was on the back foot in early Asian trade, with the euro steady at $1.1083. Sterling was little changed at $1.3147.

Against a basket of currencies, the greenback edged lower at 101.25.

Traders now peg a 44% chance of a 50-basis-point interest rate cut when the Fed meets later this month, up from 38% a week ago, according to CME’s FedWatch tool.

Still, the focus remains on Friday’s nonfarm payrolls report, where the U.S. economy is expected to have added 160,000 jobs in August, compared with an increase of 114,000 in July. The unemployment rate is expected to fall slightly to 4.2%.

“Our estimate for Friday is that it’s going to be at a number of 4.2 to 4.3%. If it’s higher than 4.5%, I think people will start expecting a 50bp cut,” he said. said Mishr of S CUBE Capital, referring to the unemployment rate.

In other currencies, the Australian and New Zealand dollars were weighed down by Thursday’s risk-on mood.

It fell 0.15% to $0.67155, while it was last 0.2% lower at $0.6186.