Investing.com – The U.S. dollar fell on Tuesday, approaching a seven-month low amid growing conviction that the Federal Reserve will cut interest rates in September.
At 04:00 ET (09:00 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.3% at 101.667, trading near its lowest level since early January.
Dollar falls amid Fed rate cut optimism
The US dollar has fallen more than 2% over the past month, as US Treasury yields have fallen amid growing optimism that the US Federal Reserve will cut interest rates in September.
Federal Reserve Chairman Jerome Powell is scheduled to speak at the bank’s meeting on Friday, and traders are looking for more clues on when and by how much the central bank will cut interest rates.
“We think Powell’s view will be reassuring and consistent with a soft 25-series baseline, but he will convey that the Fed is open to 50 and that the ceiling for that is not too high,” Evercore ISI said.
However, Evercore ISI added: “We do not expect a firm direction on whether the first step will be a 25 basis point or 50 basis point cut.” Instead, Powell is expected to indicate that the decision will depend on upcoming labor data.
The Fed has kept its benchmark overnight interest rate in the current range of 5.25%-5.50% since July, and traders have fully priced in a 25 basis point rate cut by the Fed in September, with a 24.5% chance of a 50 basis point cut.
EUR/USD at its highest levels this year
In Europe, the euro was trading little changed at 1.1086, with dollar weakness pushing the euro to its highest levels this year.
The single currency is up about 2% this month, on track for its strongest monthly performance since November.
Eurozone growth was confirmed to remain steady during the month in July, with an annual gain of 2.6%, confirming that inflationary pressures remain weak.
The pound rose 0.2% against the US dollar to 1.3009, climbing to a one-month high as the pound benefited from the dollar’s weakness.
Traders are divided on the chances of another rate cut by next month, after the rate-cutting campaign began earlier this month in a decision that is nearing its end.
Yen steady ahead of Ueda speech
In Asia, the Australian dollar fell 0.1 percent to 146.35, close to a near two-week high hit in the previous session but still off a seven-month low of 141.67 touched in early August.
Investors will be focusing on Bank of Japan Governor Kazuo Ueda when he appears before parliament on Friday. Ueda is expected to discuss the BOJ’s decision last month to raise interest rates and attention will be focused on whether he will stick to his recent hawkish tone.
Sterling fell to 7.1395, benefiting from a small support from the People’s Bank of China, which left its benchmark interest rate unchanged as expected.
The rate hold in August comes after the People’s Bank of China unexpectedly cut its key interest rate in July, as it moves to further boost economic growth.
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