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The dollar held near its lowest level in more than a year against a basket of currencies on Wednesday and sterling was just below multi-year highs as markets focused on clues on the size of a widely expected U.S. interest rate cut next month.
Cryptocurrency bitcoin was in focus in early Asian trading, falling more than 6% after breaking support around $60,000.
But currency markets were broadly subdued as traders awaited fresh clues about the state of the world’s largest economy.
Following dovish comments from Fed Chairman Jerome Powell last week, investors are betting unanimously that the Fed will begin cutting interest rates next month, with the debate now centered on whether a super-large 50 basis point cut will be made.
According to CME Group’s FedWatch tool, the probability of further rate cuts is now 36%, up from 29% a week ago.
The market has fully anticipated a 25 basis point rate cut by the Fed next month, but expects the Fed to cut rates by more than 100 basis points by the end of the year.
A preliminary estimate of U.S. second-quarter gross domestic product will be released later this week, along with the Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) index.
But as attention shifts from inflation to the strength of the economy, the significance of this week’s PCE data is “debatable,” said Matt Simpson, senior market analyst at City Index.
“A strong upside surprise would be needed to dispel expectations of multiple rate cuts from the Fed.”
The dollar index, which measures the greenback against a basket of currencies, was last up 0.02% at 100.61, hovering just above a 13-month low of 100.51 hit in the previous session.
The dollar has fallen 3.4% this month and is on track for its biggest monthly drop since November 2022.
But given that the market has been pricing in easing policy since September for weeks, the dollar’s downside momentum appears to be fading, with support around 100.18/30, Simpson said.
Sterling hit its highest level since March 2022 on Tuesday at $1.3269 before falling slightly to $1.32585.
The euro fell 0.05% to $1.117825, not far from a 13-month high hit earlier this week.
The yen fell further from a three-week high of 143.45 against the dollar hit on Monday and was last down 0.18% at 144.225.
The Australian dollar was little changed at $0.6791 as a wider-ranging inflation data release could weigh on markets. The Aussie dollar remained close to a one-month high of $0.67985 hit on Friday.
Among cryptocurrencies, bitcoin was last down 4.37% at $59,137.00 after falling more than 6% in earlier trading.
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