Dollar Slips Amid Growing Rate Cut Expectations and Ongoing Tariff Uncertainty
The U.S. dollar declined on Tuesday as growing expectations of an interest rate cut by the Federal Reserve weighed on sentiment, while markets continued to assess the broader economic impact of the new tariffs implemented last week.
Following a weaker-than-expected U.S. jobs report released on Friday, traders increasingly anticipate a rate cut as early as the Federal Reserve’s next meeting. This shift in expectations pressured the dollar, which had posted modest gains on Monday but weakened in early trading Tuesday.
The euro was last trading at $1.1579, while the British pound held steady at $1.3298. The U.S. Dollar Index, which tracks the greenback against a basket of six major currencies, stood at 98.688 after hitting a one-week low earlier in the session.
Rate Cut Expectations Surge According to the CME Group’s FedWatch Tool, markets are now pricing in a 94.4% chance of a rate cut in September, a sharp rise from 63% just a week ago.
Forecasts from leading financial institutions suggest the Federal Reserve may deliver three consecutive 25 basis point cuts starting in September, with the possibility of a more aggressive 50 basis point cut if the next labor market report shows a further uptick in unemployment.
Trade Tensions Cast a Shadow Uncertainty surrounding trade policy remains a key theme after the U.S. imposed tariffs on dozens of countries last week. These developments have intensified concerns over the resilience of the global economy and the vulnerability of supply chains.
In currency markets, the Japanese yen edged up to 146.95 per dollar, supported by minutes from the Bank of Japan’s June policy meeting, which revealed that some policymakers are open to raising interest rates if trade tensions ease.
Meanwhile, the Swiss franc held steady at 0.8081 against the dollar after losing 0.5% in the previous session. Swiss officials are reportedly preparing a more attractive proposal in ongoing trade talks with Washington to avoid a looming 39% tariff on exports to the U.S., a potential blow to the country’s export-driven economy.
Outlook Remains Uncertain Despite recent movements in forex markets, the long-term impact of the tariffs remains unclear. Traders are bracing for continued volatility as the situation evolves. Supply chain disruptions could take six to twelve months to fully materialize, revealing which sectors or economies emerge as winners or losers from the current trade landscape.
Elsewhere, the Australian dollar rose 0.11% to $0.64736, and the New Zealand dollar posted a similar gain to reach $0.5914. With sentiment shifting, the U.S. dollar’s recent strength may be entering a reversal phase as rate cut expectations solidify and global economic concerns mount.
