The US dollar slips as markets reassess the chances of a big Fed rate cut

Here’s what you need to know on Friday, September 13:

Following the upbeat action seen in the first half of the week, the US dollar (USD) The index headed south on Thursday and erased all of its weekly gains. The index is struggling to gain traction early Friday and is down towards 101.00. Eurostat will release industrial production data for July, and the US economic ledger will include August Export Price Index and Import Price Index data, along with the University of Michigan Consumer Sentiment Survey for September.

Weak US producer inflation data revived expectations for a big Federal Reserve (Fed) rate cut at next week’s policy meeting, sending the USD weaker against its main rivals. On an annual basis, the Producer Price Index (PPI) rose 1.7% in August, down from 2.1% in July and below market expectations of 1.8%. In addition, improving risk sentiment has put additional weight on the USD’s shoulders. U.S. stock index futures were trading flat early Friday, with the 10-year U.S. Treasury yield remaining in negative territory at around 3.65 percent.

The European Central Bank (ECB) announced on Thursday that it cut the deposit facility rate, also known as the benchmark interest rate, by 25 basis points (bps) to 3.5%, in line with expectations. In the post-meeting press conference, ECB President Christine Lagarde refrained from hinting at whether she plans to ease policy further in the near term. EUR/USD gathered bullish momentum in the second half of Thursday and rose more than 0.5 percent, snapping a four-day losing streak.

GBP/USD benefited from improved risk sentiment and renewed USD weakness on Thursday and gained over 0.6%. The pair remains relatively quiet and is trading in a tight channel above 1.3100 in the European morning.

Fitch Ratings said in its latest report that it expects the Bank of Japan (BoJ) to raise interest rates to 0.5% by the end of 2024, 0.75% in 2025 and 1% by the end of 2026. After closing the day with a little further down on Thursday USD/JPY it continues to decline in the European morning and was last seen losing 0.5% on the day at 141.10.

Gold it rallied in the second half of the day on Thursday and hit a new high of $2,570 during Asian trading hours on Friday. Although XAU/USD pulled back slightly, it is holding above $2,560 and remains on track for strong weekly gains.