Dollar Continues to Decline; Euro Approaches Multi-Month High

The U.S. dollar experienced further decline on Wednesday, following losses from the previous session, while the euro gained ground despite indications of economic weakness in the eurozone.

At 04:00 ET (09:00 GMT), the Dollar Index, which measures the dollar against a basket of six other currencies, was down 0.1% to 100.080, after a more than 0.5% drop in the prior session—the largest single-day percentage decrease in a month.

### Dollar Continues to Decline

The U.S. dollar has struggled for support following the Federal Reserve’s initiation of its rate-cutting cycle with a significant 50 basis-point reduction earlier this month.

Recent data indicated an unexpected drop in U.S. consumer confidence for September, raising concerns about potential growth in the world’s largest economy, especially as signs of a contracting labor market emerge.

“In a surprising turn yesterday, U.S. consumer confidence was much weaker than anticipated,” analysts at ING noted. “The market is highly sensitive to this issue given the resilience of U.S. consumers for an extended period.”

Currently, markets are pricing a 59.5% chance of a 50-basis-point rate cut at the Fed’s upcoming policy meeting, up from 37% just a week prior.

### Euro Nears 13-Month Peak

In Europe, the EUR/USD pair traded 0.1% higher at 1.1188, remaining close to a 13-month high achieved last month, benefiting from the dollar’s weakness despite data suggesting economic struggles in the eurozone.

“With Little on the European schedule today, range trading for EUR/USD appears likely. However, it is encouraging for modest EUR/USD bulls that the pair is holding above the 1.1100 level,” ING added.

The GBP/USD pair was down 0.1% to 1.3394, retreating from levels not seen since March 2022. The British pound received some support as the Bank of England is not expected to move as aggressively with rate cuts compared to the Federal Reserve this year.

Megan Greene from the Bank of England is set to speak later, and her remarks will be closely watched for insights regarding the timing of monetary easing from the UK’s central bank.

The USD/SEK pair rose 0.1% to 10.1041 ahead of Sweden’s Riksbank’s latest policy-setting meeting. A 25-basis-point rate cut is widely anticipated, although Riksbank Governor Erik Thedeen has not ruled out the possibility of a half-point reduction.

### Yuan Approaches Record Levels

The USD/CNY pair traded 0.1% lower at 7.0238, nearing its lowest point since May 2023. This decline follows Beijing’s announcement of various stimulus measures on Tuesday, including cuts to banks’ reserve requirements and lower mortgage rates.

The USD/JPY rose 0.4% to 143.81, while the AUD/USD dipped 0.2% to 0.6878, just below a 19-month high reached following a significant rally in the previous session.

Recent consumer price index data released on Wednesday showed that inflation fell to its lowest level in three years for August, though declines in core inflation were less significant.

The Reserve Bank of Australia decided to keep interest rates steady on Tuesday, forecasting a near-term decline in inflation, but projecting that price pressures would sustainably reach its target range only by 2026.