Dollar Falls on Rate Cut Expectations; euro is approaching this year’s high By Investing.com

Investing.com – The U.S. dollar fell on Tuesday, falling near seven-month lows on growing confidence that the Federal Reserve will cut interest rates in September.

At 04:00 ET (09:00 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, traded 0.3% lower at 101,667, trading near its lowest level since the beginning of January.

Dollar weakens on Fed interest rate cut optimism

The greenback has fallen more than 2 percent over the past month, in tandem with US Treasury yields, amid growing optimism that the US central bank will cut interest rates in September.

Fed Chairman Jerome Powell is due to speak on Friday, and traders are looking for more clues about when and how much the central bank will cut interest rates.

“We think Powell’s view will be reassuring and consistent with a soft baseline of a 25-second string, but he will convey that the Fed is open at 50 seconds and the bar for that is not very high,” he said Evercore ISI.

However, “we don’t expect hard direction if the first move is a 25 or 50 basis point cut,” Evercore ISI added. Instead, Powell is expected to suggest that the decision will be based on future labor force data.

The Fed has kept its benchmark overnight interest rate in the current range of 5.25%-5.50% since last July, and traders have fully priced in a 25 basis point rate cut from the Fed in September , with a 24.5% chance of 50. bp move.

EUR/USD highest this year

In Europe, it traded largely unchanged at 1.1086, with dollar weakness lifting the euro to its highest level this year.

The single currency is up around 2% this month and is on track for its strongest monthly performance since November.

The euro zone was confirmed flat in July, an annual gain of 2.6%, confirming that inflationary pressures remain modest.

traded 0.2% higher at 1.3009, climbing to a one-month high, with sterling benefiting from dollar weakness.

Traders are divided on the chances of another rate cut up to a month from now, after a campaign to cut rates began earlier this month in a short-lived decision.

Yen steady ahead of Ueda speech

In Asia, it fell 0.1% to 146.35, close to the previous session’s high close to a two-week high, but a fair distance from the seven-month low of 141.67 reached at the beginning of August.

Investors’ attention will be on Bank of Japan Governor Kazuo Ueda when he appears in parliament on Friday. Ueda is expected to discuss the BOJ’s decision to raise rates last month, and the focus will be on whether he will maintain his recent dovish tone.

traded flat at 7.1395, taking little support from the People’s Bank of China, keeping the benchmark on hold.

The August hold came after the PBOC unexpectedly cut the LPR in July as it continued to boost economic growth.