After having a strong start to the day on the back of hawkish comments from Atlanta Fed President Dennis Lockhart, the dollar went into sharp reverse on contradicting remarks from another Fed official. On Tuesday, Lockhart had raised expectations of a September rate rise by saying that “the economy is ready and it is an appropriate time to make a change” with regards to the September meeting. But on Wednesday, Fed governor Jerome Powell said that “nothing has been decided” and put more emphasis on data, specifically the jobs data before the September meeting.
The dollar index dropped back from 4-month highs after Powell’s comments, falling sharply against major currencies. But weak employment and trade data coming out soon after Powell’s remarks sent the dollar tumbling even more. The ADP employment change reading came in at 185k in July, versus estimates of 215k, and is down from June’s 237k. This suggests the strong jobs growth seen in recent months may be cooling down. US trade figures were also disappointing as the deficit rose to $43.8 billion in June from a downwardly revised $40.9 billion deficit in May.
But the dollar soon reversed its losses and strong services PMI data further boosted the greenback in early US session. Final services PMI for July was revised slightly higher to 55.7 from 55.2 and compares to 54.8 in June. The ISM non-manufacturing composite was also positive, coming in at 60.3, above forecasts of 56.3 in July.
The dollar came very close to dropping below 124 yen but managed to rebound and climb to 124.60 yen in late European trading. It fell more sharply against the Canadian dollar, which was boosted from a big jump in exports in June that led to Canada’s trade deficit shrinking to CAD 0.5 billion. The greenback had earlier breached the 1.32 handle against the loonie before plunging to 1.3109. It managed to recover slightly to 1.3140 in late European session.
The euro was broadly higher on Wednesday against major currencies. Dollar volatility saw the single currency briefly peaking at 1.0928 but had to settle around 1.0902 in late European session. Against the pound, the euro climbed to 0.6974.
Upward revisions to the Eurozone’s final services and composite PMI for July had little impact on the euro as they still pointed to slower growth at the start of the third quarter compared to June. Meanwhile, UK services PMI disappointed as it came below estimates at 57.4 in July, which is down from 58.5 in the previous month.
The data put a break on the pound’s rally against the dollar but the weak US data pushed sterling as high as 1.5650 before easing slightly to 1.5630.
Gold prices benefited from the dollar sell-off, jumping back above $1090 to $1092.47, but fell back to around $1087.50 as the dollar bounced back.
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