Dollar Slightly Recovers

The dollar recovered this morning after suffering some brief losses overnight with traders focusing on relatively confident comments from Fed Chair Jerome Powell on the economy’s outlook.

The greenback took a beating after a surprisingly sharp retreat in the ISM index of manufacturing to 52.8 and downgrades of the U.S. inflation outlook prompted investors to sell the U.S. currency and push Treasury yields lower.

But that changed when Fed Chair Jerome Powell said the factors dragging on inflation might be “transitory” and he saw no case for a rate move in either direction.

As a result, the dollar was half a percent above overnight lows against a basket of its rivals while 10-year Treasury yields was seven basis points above overnight lows.

What’s more important though is that he made it clear that he sees no case for easing interest rates.

Still, interest rate futures markets are pricing in a 64 percent probability of a rate cut by the end of the year though that probability might change after monthly jobs data due on Friday and U.S. inflation data next week.

Sterling was broadly steady after hitting a two-week high yesterday on speculation that Brexit talks between the British government and the main opposition party were making some progress.

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