The U.S. dollar held steady around a multi-week low on Tuesday as investors weighed the prospects of a potential Federal Reserve rate cut and ongoing uncertainty surrounding U.S. trade tariffs.
As of 04:39 EST (08:39 GMT), the U.S. dollar index, which tracks the greenback against a basket of major currencies, was up 0.6% at 98.30, yet remained close to the five-week trough reached on Monday. Meanwhile, the euro fell 0.5% versus the dollar ahead of new Eurozone inflation data, and the pound declined 1.0%.
Market eyes upcoming U.S. jobs report
Attention is now on Friday’s nonfarm payrolls release for August, a critical indicator that could shape expectations for a September Fed rate cut. According to CME FedWatch, the market currently assigns an 87% probability that the Fed will trim its benchmark rate by 25 basis points at the September 16-17 meeting.
Expectations gained momentum after Fed Chair Jerome Powell noted last month at an economic symposium that policymakers were ready to adjust monetary policy if inflation continued to moderate and the labor market showed signs of cooling.
“Recall it was the July jobs report – and especially the 258,000 [of] downwards back month revisions – which reversed the July rally in the dollar and was the catalyst for Fed Chair Jerome Powell opening the door to a September rate cut,” analysts at ING said in a note.
“Once again, expect a lot of focus on the back-month revisions, given that only 60% of survey respondents are answering within the first month,” they added.
In addition, the Institute for Supply Management is set to release its manufacturing sector activity index on Tuesday, followed later in the week by a report covering the critical services segment. Manufacturing represents roughly 10% of U.S. GDP, while services account for more than two-thirds of economic activity.
Trade tariffs remain a source of uncertainty
Markets are also keeping an eye on the fate of U.S. tariffs. Last week, a U.S. appeals court ruled most of President Donald Trump’s levies illegal, though it allowed them to remain in place until October 14 to give the administration time to appeal to the Supreme Court.
The economic impact of these tariffs has long been debated by investors and Fed officials alike. Despite Trump’s repeated calls for rapid rate cuts, the Fed has maintained a cautious, “wait-and-see” stance so far this year. Recent moves by Trump to push for the dismissal of Fed Governor Lisa Cook have further fueled speculation that the White House may be seeking appointments to the central bank who favor quicker rate reductions.
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