The U.S. Dollar weakened further on Tuesday, slipping to near seven-month lows as markets increasingly anticipate a rate cut by the Federal Reserve in September. The Dollar Index, which measures the greenback against a basket of six major currencies, was down 0.3% to 101.667 by 09:00 GMT, nearing its lowest level since early January.

Fed Rate Cut Anticipation Weighs on Dollar

The U.S. Dollar has declined more than 2% over the past month, largely in response to falling U.S. Treasury yields and growing optimism that the Federal Reserve will ease its monetary policy. Market participants are now fully pricing in a 25-basis-point rate cut by the Fed in September, with a smaller yet significant chance of a 50-basis-point reduction.

As the Fed’s Jackson Hole Symposium approaches, all eyes are on Fed Chair Jerome Powell’s upcoming speech. Investors and traders are keen to extract any hints on the timing and magnitude of the anticipated rate cuts. While Powell is expected to strike a reassuring tone, signaling a cautious approach to rate adjustments, the decision is likely to hinge on forthcoming labor market data.

Euro Strengthens, Nears 2024 High

The Euro (EUR/USD) traded close to its highest levels of the year, buoyed by the weakening Dollar. The pair was largely unchanged at 1.1086, marking a 2% gain for the Euro this month—the strongest monthly performance since November 2023.

In the Eurozone, the consumer price index for July confirmed subdued inflationary pressures, with a flat monthly reading and an annual gain of 2.6%. Despite the low inflation, the Euro’s strength continues to be supported by the relative weakness of the Dollar.

Sterling Rises as Dollar Weakness Persists

The British Pound (GBP/USD) also benefited from Dollar weakness, climbing 0.2% to 1.3009, a one-month high. Sterling’s recent gains come amid uncertainty over the Bank of England’s (BoE) future rate policy, with traders divided on whether the BoE will implement another rate cut in the coming month after its recent decision to begin easing rates.

Yen Holds Steady Ahead of BOJ Governor’s Speech

In the Asian markets, the Japanese Yen (USD/JPY) held steady, trading at 146.35, close to the previous session’s near two-week high. The currency remains a fair distance from its seven-month low of 141.67, seen earlier this August. Market focus is now on Bank of Japan (BOJ) Governor Kazuo Ueda, who is scheduled to speak in parliament on Friday. Investors will be looking for any signs of a shift in the BOJ’s recently hawkish stance.

Chinese Yuan Remains Flat Amid PBOC Rate Decisions

The Chinese Yuan (USD/CNY) traded flat at 7.1395, showing little reaction to the People’s Bank of China’s (PBOC) decision to keep its benchmark loan prime rate unchanged, as expected. This comes after the PBOC’s unexpected rate cut in July aimed at stimulating economic growth.

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