The U.S. dollar inched higher Tuesday as investors awaited remarks from Federal Reserve Chair Jerome Powell later in the session, following last week’s rate reduction by the central bank.
At 03:00 ET (08:00 GMT), the Dollar Index, which measures the greenback against a basket of six major currencies, rose 0.1% to 97.012, partially recovering from declines in the previous session.
Powell’s speech in focus
The dollar has been trading within a narrow range this week after last week’s swings, with attention now on Powell’s upcoming address. His comments will follow the Fed’s decision to lower interest rates by 25 basis points at its recent policy meeting. Messaging from the central bank left the outlook for future borrowing costs open to interpretation, highlighting the importance of any guidance Powell provides on the trajectory of monetary policy.
New Fed Governor Stephen Miran pushed for more aggressive rate cuts on Monday, while other officials favored a more cautious approach to ensure inflation returns to the Fed’s 2% target.
“They [Alberto Musalem, Raphael Bostic and Beth Hammack] do stand on the hawkish side of the spectrum, so that isn’t hugely surprising, but their comments suggest the hawkish front remains relatively firm despite stronger dovish pressure,” noted ING analysts in a briefing.
Market pricing currently suggests roughly a 90% probability of a 25-basis point reduction in the Fed’s target range of 4%-4.25% at the October meeting, according to CME’s FedWatch Tool, and about a 75% chance of a further cut at the December gathering.
Euro softens despite solid PMI readings
EUR/USD slipped 0.1% to 1.1789, giving back some of Monday’s gains after the euro posted its best single-day performance in a week. Earlier data showed German business activity, Europe’s largest economy, accelerated in September, driven mainly by a rebound in services.
The HCOB German flash composite Purchasing Managers’ Index, compiled by S&P Global, jumped to 52.4 in September from 50.5 in August, exceeding analysts’ forecast of 50.6. This marks the fourth consecutive month the index, covering services and manufacturing which together account for over two-thirds of Germany’s economy, has stayed above 50, indicating growth.
“This shouldn’t justify much more idiosyncratic enthusiasm for the euro, but it is probably enough to keep the common currency in a good position to benefit from more rotations away from the dollar,” ING commented.
“We expect EUR/USD to stabilise around 1.1800 today, with further moderate gains possible later this week.”
GBP/USD rose 0.1% to 1.3522, rebounding after sterling fell to a two-week low last week.
Stable moves in Asia
Elsewhere in Asia, USD/JPY traded largely flat at 147.74, and USD/CNY was steady at 7.1148, after both the Bank of Japan and the People’s Bank of China kept interest rates unchanged in recent days.
AUD/USD edged down 0.1% to 0.6590, following a private survey indicating that Australia’s business activity growth slowed in September, with U.S. tariffs weighing on exports and new orders.
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