Dollar Stabilizes, Euro Rebounds Following Selloff

The U.S. dollar found stability on Tuesday as the euro attempted to recover from significant losses experienced in the previous session.

As of 04:00 ET (08:00 GMT), the Dollar Index, which measures the greenback against a basket of six other currencies, remained mostly unchanged at 100.575, hovering just above a 12-month low.

Dollar Stabilizes After Recent Decline

The U.S. currency is regaining its footing following last week’s selloff triggered by the Federal Reserve’s rate cut. The Fed initiated its rate reduction cycle with a substantial cut of 50 basis points, leading to increased speculation about the potential for additional cuts later this year.

Traders are currently pricing in approximately a 53% likelihood that the Fed will lower rates by another half-point at its next meeting in November, based on insights from a widely-followed tool by the CME Group.

Market participants will be paying close attention to commentary from Fed Governor Michelle Bowman, the sole dissenter regarding the magnitude of last week’s rate cut. This month’s release of consumer confidence data is expected later in the session, but all eyes will be on Friday’s release of the Fed’s preferred inflation measure, core personal consumption expenditures, for further guidance.

Euro Rebounds After Decline

In Europe, the euro gained 0.2% against the dollar, trading at 1.1135, attempting to recover after a roughly 0.5% fall overnight. This decline followed a report indicating a sharp contraction in eurozone business activity for the month.

The downturn appeared to be widespread, with Germany, the region’s largest economy, experiencing a deepening contraction, while France, the second-largest economy, also returned to negative growth.

Earlier this month, the European Central Bank cut rates for the second time this year, and additional signs of economic weakness may increase the likelihood of further rate cuts in October.

The British pound was relatively stable at 1.3347, maintaining levels close to last week’s 2-1/2-year high following the Bank of England’s decision to keep interest rates steady. Analysts at ING noted that GBP/USD positioning does not appear overly stretched, suggesting a continued upward trend toward 1.35, especially in a softer dollar environment.

Yuan Strengthens After Stimulus Announcements

The Chinese yuan fell by 0.2% against the dollar, trading at 7.0356, reaching its lowest level since May 2023 after the Chinese government introduced a series of stimulus measures aimed at boosting economic recovery in the region.

The dollar strengthened against the Japanese yen, rising 0.6% to 144.51, following PMI data that indicated a continued decline in Japanese manufacturing activity, while the services sector showed growth. The Bank of Japan maintained steady interest rates last week and predicted gradual increases in inflation and economic growth.

The Australian dollar dropped 0.2% to 0.6825 after the Reserve Bank of Australia kept rates unchanged, as expected, while emphasizing its commitment to addressing persistent inflation.