The dollar experienced a decline on Tuesday, reaching a four-year low against the euro, as investors increased their expectations for a Federal Reserve interest rate cut this week. The euro increased by 0.9% to $1.1867, marking its highest point since September 2021. The U.S. dollar index, which monitors the dollar’s performance against a group of six key currencies, experienced a decline of 0.7%, settling at 96.636, marking its lowest point since July 1.
The dollar, which had stabilized in recent months after a notable decline earlier in the year, is now facing renewed selling pressure as expectations grow for the Fed to begin cutting interest rates again, coinciding with developments involving U.S. President Donald Trump. Anticipations are set for a 25-basis-point rate cut on Wednesday, as the swiftly deteriorating labor market data has been the primary catalyst for the increased easing expectations observed in recent weeks. “The dollar is exhibiting a strong downward trend across the board as investors prepare for a dovish message in Wednesday’s voting record, ‘dot plot’ summary of economic projections, and press conference,” stated Karl Schamotta. Fed Chair Jerome Powell is set to conduct a press conference after the 2 p.m. announcement of the Fed’s policy statement on Wednesday.
“Jerome Powell and his team appear to be minimizing inflation concerns while showing a distinct inclination to bolster labor markets — a strategy that may pave the way for a series of rate cuts in the upcoming months — and traders are adjusting their positions for uneven movements across the majority of major currency pairs,” Schamotta stated. The dollar experienced minimal relief following Monday’s data, which indicated that U.S. retail sales rose more than anticipated in August. Investors are expressing apprehension regarding the trajectory of U.S. economic growth, particularly in light of labor market vulnerabilities and escalating prices of goods attributed to import tariffs. “Another set of robust U.S. activity data suggest that the U.S. economy remains in decent shape despite the recent slowdown in employment growth,” stated Jonas Goltermann. “This indicates that the FOMC is likely to maintain a more measured approach to policy easing than what is currently anticipated, suggesting that Treasury yields and the dollar may experience a rebound from this point.” Sterling increased by 0.5% to $1.366, marking a peak not seen in over two months, following Tuesday’s data indicating a slight slowdown in Britain’s jobs market. This development may alleviate concerns for the Bank of England regarding ongoing inflationary pressures.
The Office for National Statistics reported a decline in the number of workers on companies’ payrolls for the seventh consecutive month. Additionally, basic wage growth in the private sector, which is closely monitored by the Bank of England, decreased to 4.7% between May and July, down from 4.8% in the three months leading up to June. The BoE is anticipated to maintain interest rates at their current level this week, following a reduction in August. The euro gained support on Tuesday as data revealed that euro zone industrial production experienced a slight increase in July, reinforcing the perspective that the sector remains resilient amid trade tensions, albeit with a sluggish rate of growth. In a surprising development, German investor morale experienced an uptick in September, as reports indicating a sense of cautious optimism.
The dollar experienced a decline against the yen, reaching a one-month low, with its latest trading position at 146.35, reflecting a decrease of 0.7%. This movement comes in anticipation of the Bank of Japan’s policy meeting scheduled for Friday, where market expectations suggest that the central bank will maintain rates at 0.5%. On Tuesday, Japan’s farm minister and the chief government spokesperson entered the competition to head the ruling party, succeeding outgoing Prime Minister Shigeru Ishiba, who declared his resignation last month.