US dollar retreats, sterling hits more than two-year high

Currency moves remained driven by the prospect of upcoming U.S. interest rate cuts, which has pressured the dollar in recent weeks. Investors see a rate cut at the Federal Reserve's September meeting as all but certain, with debate now focused on the possibility of a 50-basis-point (bp) cut instead of 25.

The rate futures market has attached a 37% probability that the Fed will raise rates by 50 bps, unchanged from late on Friday, according to LSEG calculations. About 106 bps of cuts in 2024 are priced in by futures traders.

"Since Jackson Hole, the dollar has been grinding lower, but I would argue it's more sideways than anything else," said Eugene Epstein, head of structured products, North America at Moneycorp in New York, referring to last week's Kansas City Fed’s Jackson Hole, Wyoming, symposium.

"(Fed Chair Jerome) Powell's comments were ultimately seen as dovish in every way. Non-U.S. dollar stores of wealth such as crypto recovered a little bit too. So this is all perceived as a dovish follow-through from Friday's Jackson Hole."

Sterling has been one beneficiary of the weakness in the U.S. currency, and on Tuesday the pound hit its highest since March 2022 at $1.3246. It was last up 0.3% at $1.3226.

The pound garnered support from the contrast between Friday's remarks by Powell, which underscored market pricing for meaningful U.S. rate cuts starting next month, and the more cautious comments of Bank of England Governor Andrew Bailey.

DOLLAR'S BIG MONTHLY DECLINE

The dollar index was down 0.3% at 100.53, after earlier dropping to its lowest since July last year. For the month of August, the dollar has fallen 3.2%, on track for its biggest monthly decline since November 2022.

The greenback edged lower after data showed U.S. house prices dipped 0.1% on a month-on-month basis after being unchanged in May. They increased 5.1% in the 12 months through June, the smallest year-on-year rise since July 2023,

Tuesday's report also showed U.S. consumer confidence rose in August. The Conference Board' consumer confidence index increased to 103.3 this month from an upwardly revised 101.9 in July. The market though showed little reaction to the data.

Investors are awaiting data on the preliminary estimate for gross domestic product in the second quarter, jobless claims, and personal consumption expenditures (PCE) index, the Fed's preferred inflation gauge.

The euro gained 0.2% versus the dollar to $1.1181, just off Monday's 13-month top.

"After a strong rally since early August, it looks like euro/dollar could be due some consolidation," Chris Turner, global head of markets at ING, said in a note to clients.

"The run-up in oil prices on the back of increased Middle East tension and Libyan supply challenges will not be helping."

Oil prices also paused recent advances to trade more than 2% lower on Tuesday, after a surge of more than 7% in the previous three sessions, on supply concerns prompted by fears of a wider Middle East conflict and the potential shutdown of Libyan oilfields. [O/R]

One currency boosted by the surge in oil prices was the Canadian dollar, which rose against the U.S. currency, having touched a five-month peak earlier in the session. The U.S. dollar was last down 0.3% at C$1.3449.

Elsewhere, the Australian dollar rose 0.3% to US$0.6791, not far from a one-month high of $0.6799 hit on Friday.

Against the Swiss franc, the dollar fell to its lowest since early January and was last down 0.7% at 0.8414 franc.

Currency              

bid

prices at

27

August​

07:46

p.m. GMT

Descripti RIC Last U.S. Pct YTD Pct High Low

on Close Change Bid Bid

Previous

Session

Dollar 100.55 100.85 -0.29% -0.81% 100.93 100.

index 51

Euro/Doll 1.1184 1.1161 0.21% 1.32% $1.1191 $1.1

ar 15

Dollar/Ye 143.95 144.56 -0.35% 2.14% 145.135 143.

n 89

Euro/Yen 1.1184​ 161.29 -0.18% 3.45% 162.17 160.

88

Dollar/Sw 0.8414 0.8473 -0.7% -0.03% 0.8484 0.84

iss 1

Sterling/ 1.3259 1.3187 0.56% 4.2% $1.3269 $1.1

Dollar 15​

Dollar/Ca 1.3448 1.3486 -0.26% 1.46% 1.3488 1.34

nadian 45

Aussie/Do 0.6791 0.6772 0.3% -0.39% $0.6796 $0.6

llar 762

Euro/Swis 0.941 0.9455 -0.48% 1.34% 0.9474 0.94

s 08

Euro/Ster 0.8432 0.8463 -0.37% -2.72% 0.8468 0.84

ling 33

NZ 0.625 0.6204 0.74% -1.09% $0.6254 0.61

Dollar/Do 95

llar

Dollar/No 10.4634​ 10.5295 -0.63% 3.24% 10.5539 10.4

rway 537

Euro/Norw 11.7036 11.7726 -0.59% 4.27% 11.786 11.6

ay 842

Dollar/Sw 10.1457 10.213 -0.66% 0.78% 10.2275 10.1

eden 32

Euro/Swed 11.3478 11.4016 -0.47% 2% 11.4184 11.3

en 368