The U.S. dollar remained steady near its strongest levels in three months on Tuesday, as traders scaled back expectations for further Federal Reserve rate cuts, while the British pound weakened amid renewed political pressure on Finance Minister Rachel Reeves.
At 04:35 ET (09:35 GMT), the Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.1% to 99.770, hovering near its highest point since August.
Dollar Steadies Near Highs
The dollar held firm early Tuesday, as uncertainty grew around the future path of U.S. monetary policy with the ongoing federal shutdown keeping key data releases off the calendar.
The Federal Reserve lowered rates last week, but Chair Jerome Powell signaled it could be the final cut of the year. However, San Francisco Fed President Mary Daly said Monday she would “keep an open mind” regarding the December meeting, while Fed Governor Lisa Cook described the upcoming gathering as “live” for a potential policy move.
“This week is all about reassessing December Fed rate cut expectations,” analysts at ING wrote in a note. “Recent Fed commentary has clearly suggested lower conviction on a preset easing path, which implies some greater data dependency.”
Yet, that data dependency is complicated by the government shutdown, which has halted key economic releases such as the JOLTS job openings report.
“As a result, the few data points we do get – especially tomorrow’s ADP report – can have an outsized impact on markets, while the broader lack of data may lead to more spells of directionless FX trading,” added ING.
Sterling Slips Amid Political Tensions
In Europe, GBP/USD fell 0.4% to 1.3088, as comments from Rachel Reeves, the U.K. finance minister, rattled investors. Reeves said earlier that she would do what is “necessary – not popular – to protect the country against high inflation and high interest rates.”
Reeves is widely expected to introduce tax hikes in the November 26 budget, a move that would contradict her earlier campaign pledge not to raise taxes for “working people.” While politically risky, such action may be required for her to meet fiscal targets — a factor closely watched by bond markets.
Meanwhile, EUR/USD edged 0.1% lower to 1.1509, after briefly touching a three-month low, following weak data showing stagnation in eurozone manufacturing activity during October.
“The slew of post-meeting ECB speakers has added little to the policy narrative. The Governing Council is broadly on the same page with the rates view, and the feeling is that some substantial data surprises are now needed to create new division among policymakers,” said ING.
“If anything, we think the ECB might cut once again, but the risks at the moment aren’t high, and we predict that the easing cycle is over.”
Last week, the European Central Bank kept its key interest rate unchanged at 2% for the third consecutive meeting.
Yen Rebounds After Weakness
In Asia, USD/JPY slipped 0.5% to 153.51, as the yen rebounded from an eight-and-a-half-month low. Japan’s Finance Minister Satsuki Katayama reiterated Tuesday that the government would continue to monitor foreign exchange movements “with a high sense of urgency.”
Although Bank of Japan Governor Kazuo Ueda hinted last week that a rate hike could come as early as December, investors remained skeptical given the central bank’s cautious tone.
Elsewhere, USD/CNY gained 0.1% to 7.1237, while AUD/USD fell 0.3% to 0.6517, after the Reserve Bank of Australia kept interest rates unchanged at 3.60%, as expected.
The Australian central bank noted that inflation remains “materially higher than expected” and warned it would take time to bring price growth back to target — a signal that no immediate policy shift is likely.
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