MUMBAI : The dollar hit a seven-week low on Tuesday as investors braced for U.S. data revisions that could point to a jobs market in worse shape than initially thought, shoring up the case for even deeper Federal Reserve interest rate cuts.
The dollar slumped 0.7 per cent against the Japanese yen to 146.32, its weakest level since mid-August while sterling was up 0.2 per cent at $1.3558. The euro slipped to $1.1752 after touching its strongest level since July 24.
A Bloomberg news report that Bank of Japan officials believe it may be possible to raise the benchmark interest rate again this year also helped boost the Japanese currency.
The yen is likely to be exposed to heightened volatility due to ongoing political uncertainty and was likely helped along on Tuesday by market participants bringing forward expectations of a BoJ rate hike, said Samy Chaar, chief economist at Lombard Odier.
Against a basket of peers, the dollar slipped to a low of 97.25, its weakest since late July, ahead of the release of preliminary benchmark revisions for jobs data covering the period from April 2024 to March 2025.
Economists anticipate a downward revision of as much as 800,000 jobs, which could signal that the Fed is behind the curve in efforts to achieve maximum employment.
While the job revisions data could heighten expectations of an outsized rate cut, inflation data due later in the week could also temper those expectations, Chaar said.
U.S. producer price inflation data is due on Wednesday followed by the consumer price inflation reading on Thursday. The data points will be in focus to gauge the impact of tariffs on prices in the world’s largest economy.
Traders’ expectations of more aggressive Fed easing are gradually increasing. Money markets have fully priced in a 25 basis-point cut, and the odds of an outsized 50 basis-point reduction have drifted higher to nearly 12 per cent as well, per CME’s FedWatch tool.
Burgeoning expectations of policy easing by the Fed have also helped lift the spot gold price to a record high of $3,659.10 per ounce on Tuesday.
Among other currencies, the Norwegian crown advanced about 0.2 per cent against both the dollar and the euro after Norway’s minority Labour Party government won a second term in power on Monday.
Political developments from Tokyo to Buenos Aires are likely to stay in focus for investors after the resignation of Japanese Prime Minister Shigeru Ishiba, the ouster of French Prime Minister Francois Bayrou and the abrupt removal of Indonesia’s finance chief, all over the past few days.
“While the political uncertainty is an unfavourable development, we continue to believe that it is unlikely to be sufficient on its own to trigger a weaker euro,” Lee Hardman, senior currency analyst at MUFG, said in a note.
Later this week, the European Central Bank is widely expected to keep rates unchanged at its policy meeting on Thursday.
Economists were split last month on the likelihood of further rate reductions by the ECB, but sentiment has shifted with recent data showing inflation holding close to the 2 per cent target and unemployment at a record low.
Meanwhile, the Indonesian rupiah weakened 1 per cent after the government replaced its finance minister on Monday. Bank Indonesia was seen buying longer-dated government bonds on Tuesday in an attempt to stabilise the market, according to two traders.
