Euro eases from three-month high as US Dollar stabilises, Jobless Claims beat expectations

The euro softened from a three-month peak on Thursday as the US Dollar steadied, after initially experiencing a sharp decline the previous day. At the time of publication, the Euro to US Dollar exchange rate stood at around 1.1686, having previously reached an intraday high of 1.1710, which was the highest since May 14. The US Dollar found support as US Treasury yields rebounded following a significant drop on Wednesday, triggered by the Treasury Department's announcement of increased liquidity support buybacks for longer-dated government securities.

DBS Group Research strategist Chang Wei Liang noted the recent fluctuations in Dollar value but cautioned against anticipating further declines, stating that the additional buybacks were minimal and there were no changes in monetary policy. Consequently, the Dollar was more likely to stabilize rather than continue its recent decline.

Meanwhile, the US Dollar Index (DXY), which measures the Dollar's performance against a basket of six major currencies, was trading near 98.76, having recovered from a low of 98.56 earlier in the day. Additionally, the latest US labor market data provided further backing for the US Dollar. Initial Jobless Claims for the week ending August 15 fell to 206K, which was lower than the expected 210K and the previously revised 212K.

Monetary policy-wise, the Federal Reserve and the European Central Bank were anticipated to diverge at their upcoming meetings. The Federal Reserve was expected to maintain interest rates unchanged, while the European Central Bank was seen raising rates for the second time in the year. These divergent policy expectations were compounded by persistent energy-driven inflation risks stemming from the ongoing US-Iran dispute, which has restricted shipping through the Strait of Hormuz.

San Francisco Fed President Mary Daly commented that rising bond yields did not signal policy changes and that the Fed's policy was "in a good place." She emphasized that short-term yields indicated the markets understood the Fed's reaction function and stressed that the central bank had to concentrate on achieving its inflation target.

The table below showcases the percentage change of the US Dollar against selected major currencies on Thursday. The US Dollar emerged as the strongest against the Japanese Yen. The heat map below illustrates the percentage changes of major currencies against each other, with the base currency listed on the left column and the quote currency on the top row.

For instance, choosing the US Dollar from the left column and moving horizontally to the Japanese Yen would display the percentage change of USD/JPY in the corresponding box. As a macro-focused analyst with over four years of experience in forex and commodities markets, I specialize in dissecting intricate economic trends and presenting them in clear, actionable insights to assist traders in staying ahead of market movements.