The dollar index was at 101.95 after hitting its lowest since January 2 of 101.82 earlier on Tuesday
The dollar wavered near a seven-month low on Tuesday on bets the U.S. Fed will start cutting interest rates from next month, with traders bracing for comments from Fed Chair Jerome Powell on Friday.
The weakness in the dollar lifted the euro to its highest level this year, while sterling was near a one-month high. The MSCI’s emerging markets currency index also reached a record high.
The focus this week will be on Powell’s speech in Jackson Hole, likely keeping investors hesitant in placing major bets before the event. Minutes of the Federal Reserve’s last meeting due to be released on Wednesday will also be in the spotlight.
Investors largely expect Powell to acknowledge the case for a rate cut and will look for cues on whether the Fed will start with a 25 bps cut or a 50 bps cut in September.
While labour market deterioration led to the markets expecting a bigger rate cut in September, data since has been mixed with upbeat retail sales still indicating a resilient consumer, according to Charu Chanana, head of currency strategy at Saxo.
This could keep Powell wary of sending a strong signal on the magnitude of the first rate reduction. Also, any clear risks of a larger rate cut could also signal a policy mistake from the Fed and higher recession risks, Chanana added.
Markets are pricing in a 24.5% probability of a 50 basis point cut in September, down from 50% a week ago, with a 25 basis point cut having odds of 75.5%, the according to CME FedWatch Tool. Traders are pricing in a total of 93 bps of cuts this year.
The dollar index was at 101.95 after hitting its lowest since January 2 of 101.82 earlier on Tuesday. The index is down more than 2% in August and set for a second month in the red.
