The U.S. dollar posted a modest uptick on Tuesday, though the broader trend remained soft as investors continued to price in a high probability of a Federal Reserve rate cut later this month.
At 04:30 ET (09:30 GMT), the Dollar Index — which measures the greenback’s performance against six major peers — was up 0.1% at 99.422, following a seven-day slide that pushed it to a two-week low on Monday.
Fed expectations dominate currency markets
Fresh economic data released Monday showed that U.S. manufacturing contracted for the ninth month in a row in November, reinforcing concerns that the economy is losing steam heading into year-end.
According to the CME FedWatch tool, traders now assign an 88% chance that the Fed will cut rates by 25 basis points at its December 10 meeting — a notable jump from 63% a month earlier.
Analysts at ING wrote that “we expect that the remainder of the week will validate the market’s dovish pricing for next week’s Fed meeting.”
Markets are also awaiting clarity on who will succeed Fed Chair Jerome Powell, after reports indicated White House adviser Kevin Hassett is currently the leading candidate.
U.S. Treasury Secretary Scott Bessent has said there is a strong likelihood President Donald Trump will reveal his pick before Christmas.
Euro holds near steady ahead of flash inflation
In Europe, EUR/USD slipped slightly to 1.1607 as diplomatic discussions continued over the war in Ukraine, with U.S. envoy Steve Witkoff heading to Moscow for talks with Russian officials.
Later in the day, investors will receive the eurozone’s flash inflation figures. Markets expect annual inflation to remain just above the ECB’s medium-term target, a reading unlikely to influence policy expectations as traders broadly anticipate no rate moves until 2026.
ING commented that “the risks are slightly on the downside for the euro, but our expectation is for a neutral FX impact nonetheless and EUR/USD can eye 1.170 again soon if USD drops in line with our call.”
The GBP/USD pair edged down to 1.3213, though the pound hovered near its highest readings in a month. The slight pullback followed the resignation of the head of the U.K.’s fiscal watchdog, who stepped down after the institution mistakenly published budget details ahead of Chancellor Rachel Reeves’ parliamentary announcement.
Yen softens after Monday’s brief rally
In Asian trading, USD/JPY gained 0.3% to 155.94, recovering after a 0.5% decline the previous session that was sparked by hawkish messaging from Bank of Japan Governor Kazuo Ueda.
Ueda said over the weekend that the BOJ could consider raising interest rates as early as this month, pushing yields on Japanese government bonds to their highest levels in decades.
The 30-year JGB yield rose above 1.9%, while the 10-year tested 1.88%.
Across the region, USD/CNY slipped to 7.0700, while AUD/USD rose 0.1% to 0.6553.
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