Dollar Edges Up Amid Weak U.S. Data; Euro Holds Steady Before ECB Decision
The U.S. dollar showed modest gains on Wednesday, recovering from earlier losses caused by disappointing economic data. The latest report revealed a contraction in the U.S. services sector for the first time in nearly a year, along with signs of a weakening labor market. These developments prompted a rally in Treasuries and increased expectations for more interest rate cuts from the Federal Reserve. Despite this, markets remained relatively calm, with investors awaiting key economic reports and policy decisions later in the week.
In currency markets, the dollar gained 0.37% against the yen and 0.25% against the Swiss franc, while the euro remained stable at $1.1416—close to its six-week high. The British pound also held steady at $1.3565. Analysts noted that foreign exchange markets were largely in a holding pattern, waiting for the European Central Bank’s rate decision and the U.S. May jobs report, both of which are expected to influence market direction significantly.
The European Central Bank is widely expected to lower interest rates by 0.25 percentage points, marking its eighth cut in just over a year. This anticipated move comes as euro zone inflation continues to fall below the ECB’s 2% target, giving the bank room to stimulate the region’s struggling economy. Analysts at Commerzbank believe the ECB might also revise its 2025 growth and inflation forecasts downward and could address the euro’s recent strength due to its deflationary impact.
Attention now turns to Friday’s monthly U.S. payrolls data, a key indicator of the labor market’s health. Early signs point to slower job growth, with private payrolls in May coming in below expectations. Economists forecast that non-farm payrolls will rise by 130,000 jobs, down from April’s 177,000, with the unemployment rate holding steady at 4.2%. A weaker-than-expected report could intensify pressure on the dollar and increase speculation of imminent Fed rate cuts.
Investor sentiment has also been shaken by ongoing trade uncertainties and aggressive tariff announcements from President Donald Trump. While some tariffs were paused, new ones have been introduced, adding to global market unease. The dollar index, which tracks the U.S. currency against six major peers, has fallen about 9% this year and is on track for its worst annual performance since 2017. With markets pricing in significant Fed easing, the dollar’s decline may continue unless economic indicators show unexpected resilience.
Source: Reuters