The U.S. dollar rose in early European trading on Wednesday but remains near seven-month lows, as the Federal Reserve minutes from its last meeting and likely revisions to payroll data point to a rate cut next month.

The dollar loses strength in anticipation of Fed minutes and payroll revisions

The dollar has been under pressure, falling more than 2% over the past month, with U.S. bond yields falling to more than a one-year low after unexpectedly weak employment figures sparked fears of a possible economic recession.

As a result, the revised payroll data, due out Wednesday, is in focus, and the likelihood of a possible downward revision is weighing on the dollar.

The minutes of the Fed’s late July meeting are likewise being released a few hours later in the session, and traders will be paying close attention to estimates that the Fed will cut interest rates at its policy meeting in the middle of next month.

Since July, the Fed has kept its benchmark overnight interest rate between 5.25% and 5.50%.

Nomura expects continued weakness in the U.S. dollar, supported by various macroeconomic factors, positioning adjustments, and, ultimately, portfolio reallocations, which are expected to put downward pressure on the dollar in the coming months.

The euro heads for a strong month

Turning to Europe, EUR/USD was down about 0.1% to 1.1120, slightly below a high of 1.1130, the highest level since November 28.

Nomura expects a narrowing of the growth differential between the U.S. and Europe, which has been an important factor in the dollar’s strength.

GBP/USD was down about 0.1% at 1.3020, just below last session’s high of 1.3054, a level last reached in July of last year.

Data released on Wednesday showed that U.K. government borrowing rose more than expected in July, with public sector net borrowing of £3.1 billion the previous month, £1.8 billion higher than a year ago, and the highest July borrowing recorded since 2021.

Traders are divided on the odds regarding a further rate cut by the Bank of England in mid-September, after starting a rate-cutting campaign earlier this year in a very tight decision.

Yen loses ground

Turning to Asia, USD/JPY rose 0.5% to 146.01, although it remained well below the high of 160 reached earlier in the year.

USD/JPY had fallen to 141 in early August as the yen carry trade had largely unraveled on signs of strength from the Bank of Japan, with rising interest rates in Japan expected to underpin the yen and further weaken the carry trade in the coming months.

USD/CNY traded virtually flat at 7.1326 after a slightly stronger midpoint fixing by the PBOC. During Tuesday’s trading, the central bank also kept its prime lending rate unchanged.