Dollar Slumps to Multi-Month Lows Ahead of Fed Rate Decision

Dollar Weakens on Fed Easing Bets

The U.S. dollar extended its slide on Tuesday, retreating to multi-month lows against several major currencies as investors ramped up bets that the Federal Reserve will cut interest rates this week.

The dollar index slipped to 97.121, its weakest level since July 7, pressured by softer U.S. labor market data and renewed calls from President Donald Trump for aggressive monetary easing. Markets are pricing in a 25 basis point cut on Wednesday, although Trump urged Fed Chair Jerome Powell to deliver a “bigger” move, pointing to signs of strain in the housing sector.

Sterling and Euro Gain Ground

Sterling rose 0.2% to $1.3627, its highest level since early July, as fresh data showed Britain’s labor market losing momentum. Payrolls fell for a seventh straight month, while private-sector wage growth slowed to 4.7% between May and July, down from 4.8% previously. These trends may ease concerns about persistent inflation pressures, but the Bank of England is still expected to hold rates steady at its meeting later this week after August’s rate cut.

The euro climbed as much as 0.3% to $1.1797, its strongest since July 3, benefiting from broad dollar weakness. Investors now await German ZEW surveys, eurozone wage data, and industrial production figures for further cues on regional momentum.

Aussie and Yen in Focus

The Australian dollar briefly touched $0.6677, its strongest since November 2024, before easing slightly to $0.6666. The currency has been buoyed by improving risk sentiment and expectations of firmer demand for commodities.

Against the yen, the dollar slipped 0.3% to 146.92, ahead of the Bank of Japan’s policy meeting on Friday, where rates are widely expected to remain at 0.5%. Japanese politics also added uncertainty, with the farm minister and government spokesperson entering the race to succeed outgoing Prime Minister Shigeru Ishiba.