NEW YORK: The US dollar declined for a second consecutive day on Thursday as data showed weakness in the US labor market, increasing expectations of another rate cut this year.
Meanwhile, sterling rose after the Bank of England kept rates unchanged ahead of this month’s budget. The central bank had been expected to leave rates unchanged, although markets had attached a one-in-three chance of a cut earlier on.
US-based employers cut more than 150,000 jobs in October, marking the biggest reduction for the month in more than 20 years, a report by Challenger, Gray & Christmas said on Thursday as industries adopt AI-driven changes and intensify cost cuts.
Economic data from private sources has drawn increased investor interest amid the absence of official data during the US government’s longest-ever shutdown.
Thursday’s weakness for the dollar follows a strong rally that started last week after the Federal Reserve tempered expectations for additional cuts this year amid limited economic data, persistent inflation, and internal disagreement among policymakers.
“The move lower in the dollar this morning was largely anticipated,” Antonio Ruggiero, FX & macro strategist at Convera, said.
“The lack of data from the government shutdown led investors to inflate optimism around the US,” he said.
“When figures like the Challenger layoff report emerge, they easily trigger fear among investors who remain unconvinced about the durability of improved USD sentiment. That’s enough to prompt position unwinds, driving the dollar lower,” Ruggiero said.
Traders now see a 69 percent probability of a December rate cut, up from 62 percent the previous day, according to CME FedWatch. However, this remains well below the roughly 98 percent odds priced in late October.
The euro rose 0.3 percent against the dollar to USD1.15225, while the dollar slipped 0.2 percent to 99.935 against a basket of major rivals, including the common currency.
The dollar fell 0.4 percent against the yen to 153.51 yen, pulling back from the near nine-month high of 154.48 yen touched on Tuesday.
Sterling traded 0.3 percent higher at USD1.3088. It had touched a seven-month low of USD1.3011 on Wednesday.
Before the BoE meeting, markets were pricing a one-in-three chance of a cut, while most analysts believed the central bank would likely hold fire. By next month, the BoE will have seen official inflation and jobs data for October and November, and will know the extent of tax increases that are widely expected in finance minister Rachel Reeves’ November 26 budget.
Reeves paved the way on Tuesday for broad tax rises to avoid a return to “austerity”, framing her second annual budget as one of “hard choices” to protect public spending while reducing Britain’s debt.
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