The U.S. dollar eased to its lowest level in over two months on Tuesday as traders positioned ahead of the Federal Reserve’s policy decision and the release of U.S. retail sales figures.
At 04:25 ET (08:25 GMT), the Dollar Index, which measures the greenback against six major currencies, fell 0.2% to 96.727, marking its weakest point since July.
Dollar starts week “softish”
The market widely anticipates a 25-basis-point rate cut from the Fed at the conclusion of this week’s meeting, following recent signs of weakening in the U.S. labor market and softer-than-expected inflation for August.
“The dollar has started the week on the softish side,” noted analysts at ING. “This may partly involve some pre-positioning ahead of tomorrow night’s Fed rate cut. But it will also be a function of the benign external environment.”
CME FedWatch data shows traders are pricing in a 96.4% probability of a 25-basis-point cut on September 17, with a 3.6% chance of a larger 50-point reduction. Investors are also watching August retail sales closely for insights into U.S. consumer resilience amid the uncertainty created by the Trump administration’s trade policies.
“Today’s release of import price data will be closely examined to determine who is absorbing the cost of tariffs. Are exporters to the U.S. reducing their prices, or are U.S. businesses either absorbing the costs through margins or passing them on to consumers?” ING added.
Euro climbs
In Europe, EUR/USD rose 0.3% to 1.1794 ahead of September’s German ZEW economic sentiment data.
“These might nudge higher on the back of the positive equity environment seen this summer, but look unlikely to be a market mover,” ING said. “EUR/USD is pretty close to resistance at 1.1800/1830 now. The most likely trigger for a breakout would be tomorrow night’s Fed – but let’s see if it happens earlier.”
GBP/USD gained 0.2% to 1.3630, with sterling hitting a two-month high against the dollar. Earlier data showed the U.K. unemployment rate held near a four-year high at 4.7% in the three months to July, while wage growth, excluding bonuses, slowed slightly to 4.8% in the three months to June.
The Bank of England is expected to keep interest rates steady on Thursday after five reductions over the past 13 months.
“We’re still narrowly favoring a November rate cut but a surprise spike in inflation tomorrow (one that’s not driven by volatile categories) would probably change our mind on that,” ING added.
Yen strengthens ahead of BOJ decision
USD/JPY fell 0.5% to 146.73, with the yen recovering after a long weekend. The Bank of Japan is scheduled to announce its policy decision on Friday and is widely expected to maintain rates around 0.5%, despite political upheaval following Prime Minister Shigeru Ishiba’s resignation. Analysts note that persistent domestic inflation could still prompt a rate hike as early as October, pending August consumer inflation data.
USD/CNY slipped 0.1% to 7.1147, with the yuan receiving a modest boost from Beijing’s pledge of further stimulus measures, including the rollout of “15-minute convenience living circles” in major cities to support private consumption. Recent weak economic data for August underlines ongoing pressures on the Chinese economy. Trade discussions between Washington and Beijing, particularly on semiconductors, continue to influence the currency.
AUD/USD inched up 0.1% to 0.6671, approaching a 10-month high.
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