The U.S. dollar remained close to a five-week low on Tuesday as investors assessed the likelihood of an upcoming Federal Reserve rate cut and ongoing uncertainty over U.S. trade tariffs.
By 04:39 EST (08:39 GMT), the U.S. dollar index, which tracks the greenback against a basket of major currencies, had risen 0.6% to 98.30 but stayed near Monday’s multi-week low. The euro weakened 0.5% against the dollar, while sterling dropped 1.0% ahead of fresh Eurozone inflation data.
Focus shifts to U.S. jobs data
Market attention is centered on Friday’s release of the U.S. nonfarm payrolls report for August. This report is expected to heavily influence expectations for a potential Fed rate cut this month. CME FedWatch shows an 87% chance that the Fed will lower its benchmark rate by 25 basis points at the September 16-17 meeting.
Fed Chair Jerome Powell had indicated at a recent economic symposium that policymakers are ready to adjust policy if inflation continues to ease and labor market conditions soften.
“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,” ING analysts noted.
“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.
The Institute for Supply Management will also release its U.S. manufacturing activity index on Tuesday, followed later in the week by a key report on the services sector. Manufacturing accounts for roughly 10% of U.S. GDP, with services making up over two-thirds of the economy.
Trade policy uncertainty persists
Market concerns persist over U.S. tariffs. A U.S. appeals court recently ruled most of President Donald Trump’s levies illegal, though it allowed them to remain in effect until October 14 while the administration appeals to the Supreme Court.
The tariffs’ impact has long been a source of debate for both investors and Fed officials. Despite Trump’s calls for rapid rate cuts, the Fed has maintained a cautious “wait-and-see” approach this year. Trump’s recent push to remove Fed Governor Lisa Cook has also intensified speculation that the White House may seek appointments supportive of faster rate reductions.
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