Demand at the end of the month pushed the dollar to its biggest one-day gain since June, keeping an eye on economic data

The dollar rallied on Wednesday on month-end buying and technical factors, after hitting its lowest level in more than a year in recent losses, as traders awaited data that could determine the pace of the Federal Reserve's looming easing cycle.

this monthforeign exchange marketThere were several sharp movements, with fears of a potential U.S. recession and hawkish signals from the Bank of Japan plunging the dollar and causing other major currencies to surge.

foreign exchange trading platformWith a series of latent risk events looming, including Nvidia's earnings release and next Friday's all-important non-farm payrolls report, traders are reducing risk exposure and buying the dollar against high beta currencies, "Toronto-based chief market strategist Karl Schamotta said in intraday trading on Wednesday.

(One-hour chart of the US dollar index)

The dollar index rose 0.5% to 101.06, its largest one-day percentage gain since mid-June.However, the dollar, which hit a 13-month low of 100.51 in the previous session, had fallen 2.8 per cent so far in August and was on course for its biggest monthly decline since November 2023, weighed down by a recent large-scale re-digestion of expectations of a US Federal Reserve rate cut.

"Given this month's decline, the dollar's rise today makes sense. We are seeing a significant depreciation of the dollar, down 5% so far in the second half of 2024," said Boris Kovacevic, global macro strategist at Convera. "Looking at the flow of funds, I think Wednesday's dollar buying was the usual end-of-month flow, especially considering the dollar's decline this month."

After Federal Reserve Chairperson Jerome Powell signaled a dovish bias last week, investors also expect the Federal Reserve to start cutting interest rates next month, and the current debate is over whether to make a super-large 50 basis point rate cut or a standard 25 basis point rate cut.

According to calculations by the London Stock Exchange Group (LSEG), the market now expects a 37% chance of a larger rate cut, unchanged from late Tuesday. The market expects a rate cut of about 105 basis points before the end of the year.

A preliminary estimate of second-quarter gross domestic product and the core personal consumption expenditure (PCE) price index, the Fed's preferred measure of inflation, will be released later this week. If weaker than expected, both could push the dollar lower.

Matt Simpson, senior market analyst at City Index, said the downward momentum of the dollar may be waning given that the market has been expecting a rate cut in September for several weeks, and the dollar index has built support near the 100.18/30.

"More broadly, valuations across asset classes are looking overvalued," said Corpay's Schamotta. "If investors balk in the coming weeks, the global dominance of the dollar... could come back."