The Dollar traded near a two-and-a-half-month low against the euro on Tuesday. It also hovered close to a 10-month trough against the Australian dollar, which is considered risk-sensitive. Investors are firmly betting on a Federal Reserve interest rate cut this week, with expectations of more to follow.
The U.S. currency also slipped near a two-month low against the British pound. Pressure has been building after U.S. President Donald Trump repeated calls for stronger monetary easing. Markets expect the Fed rate to be reduced by at least 25 basis points on Wednesday. Some analysts even see a small chance of a larger 50 basis-point cut.
Forecasts suggest total reductions of about 67 basis points for the rest of 2025. By January next year, this could rise to 81 basis points. Trump has urged Fed Chair Jerome Powell to deliver a “bigger” cut, citing the housing market as a key reason.
Weak labor market data has been a major factor behind rising expectations of easier policy. Softer employment figures have weighed on the Dollar and U.S. bond yields while boosting equity markets. Wall Street hit new record highs on Monday, reflecting optimism about monetary support.
Analysts believe the Fed rate is still not aligned with current economic conditions. Chris Weston, head of research at Pepperstone, said there is growing belief that the central bank is “behind the curve” and needs to act faster. He added that markets are now leaning toward multiple cuts, not only in September but also in October, December, and possibly January.
In currency markets, the euro traded at $1.1765 in early Asian hours, close to last week’s two-month peak of $1.1780. Sterling was steady at $1.3605, after touching its highest level since July 8. The Australian dollar held firm at $0.6672, near its best level since November. Meanwhile, the U.S. dollar was flat at 147.42 yen.
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