Stocks decline and dollar rebounds as Fed readies rate cuts

Stocks fell and the dollar gained on Thursday as traders digested fresh economic data and awaited confirmation from the U.S. Federal Reserve on Friday that it will soon start to cut interest rates.

All three major U.S. stock indexes lost ground, weighed by technology shares. The Dow Jones Industrial Average fell 0.43%, to 40,712, the S&P 500 lost 0.89%, to 5,570 and the Nasdaq Composite lost 1.67%, to 17,619.

Fed meeting minutes, released on Wednesday, said the “vast majority” of policymakers felt that, if data came in as expected, a September cut was likely to be appropriate — validating market expectations.

On Thursday, fresh data showed the number of Americans filing new applications for unemployment benefits rose in the latest week, consistent with a gradual cooling of the labor market.

A slowdown in overall U.S. business activity this month added to the evidence that the economy is slowing and inflation is downshifting, which should allow Fed officials to focus more attention on jobs. Interest rates on home loans have already begun dropping, helping fuel a larger-than-expected rebound in existing home sales last month.

Steve Englander, a markets strategist for Standard Chartered Bank, said the minutes showed the Fed was in sight of its inflation target and unemployment is rising, putting a 50 bps rate cut “on the table”.

“If they are not announcing that they have won on inflation, they are saying they expect to win relatively soon,” Englander wrote in an email on Thursday.

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DOLLAR REBOUND

The dollar rebounded from a 13-month low against the euro before Federal Reserve Chair Jerome Powell is due to speak on Friday.

The greenback’s recent weakness was seen as being overdone. The dollar index, gained about 0.4%.

Lower U.S. rates would give central banks around the world room to move. On Thursday the Bank of Korea opened the door to a cut in October, while Bank Indonesia has lined up cuts in the fourth quarter.

Still, rates and currency markets see a U.S. easing cycle as having further to run than other countries.