NEWS

The US dollar fell to its lowest level in more than two months on Tuesday, as investors awaited the outcome of the latest Federal Reserve policy meeting and key US retail sales data that will shed light on consumer strength amid slowing growth.

At 11:25 a.m. Riyadh time, the US Dollar Index – which tracks the greenback against a basket of six major currencies – slipped 0.2% to 96.727, marking its weakest level since July. This decline highlights the cautious sentiment dominating global forex markets ahead of the Fed’s decision.

Fed Expectations Weigh on the Dollar

Markets widely expect the Federal Reserve to cut interest rates by 25 basis points at the conclusion of its meeting later today, following signs of persistent weakness in the US labor market and moderate inflation readings in August. According to the CME FedWatch Tool, traders assign a 96% probability of a 25 basis point cut, with only 3.6% betting on a larger 50 basis point move.

Point Trader Group noted in its market outlook that “the dollar’s weakness reflects pre-positioning by investors ahead of the Fed’s announcement, combined with an external environment that favors demand for alternative currencies such as the euro and sterling.”

Euro Gains as Dollar Weakens

The euro climbed 0.3% against the dollar to 1.1794, supported by optimism surrounding the German ZEW economic sentiment index. While the survey is expected to show only modest improvement, traders are eyeing the Fed’s policy stance as the real driver of EUR/USD momentum.
From a technical perspective, the pair is approaching resistance levels around 1.1800–1.1830, with a potential breakout hinging on the tone of the Fed’s forward guidance.

Pound Sterling at Two-Month High

The British pound advanced 0.2% to 1.3630, hitting its highest level in two months against the dollar. The move came despite UK labor market data showing unemployment steady at 4.7%, the highest in nearly four years. With the Bank of England set to meet on Thursday, markets largely expect interest rates to remain unchanged, though inflation figures could alter expectations for future policy shifts.

Yen Strengthens Amid Political Uncertainty

The USD/JPY pair dropped 0.5% to 146.73 as the yen firmed following a long holiday weekend. The Bank of Japan is scheduled to meet on Friday, with expectations for rates to remain unchanged near 0.5%. However, persistent domestic inflation could force the central bank to consider a hike as early as October.
Markets will closely watch Friday’s Japanese consumer inflation report for further clues on policy direction.

Yuan Supported by Beijing’s Stimulus Pledge

The dollar/yuan pair edged down 0.1% to 7.1147, with the Chinese currency supported by fresh pledges from Beijing to boost economic activity. Authorities announced new measures to stimulate domestic consumption, including the expansion of “15-minute living circles” in major cities to encourage local spending.
Despite weaker August data, the yuan has remained near its strongest levels since November 2024, thanks to sustained government support and intervention.

Australian Dollar Near 10-Month High

The Australian dollar inched up 0.1% to 0.6671, hovering close to a 10-month high against the US dollar. The currency continues to benefit from commodity demand and optimism that Chinese stimulus measures will support regional trade.

Market Outlook

Global markets are bracing for heightened volatility as the Fed decision and US retail sales data loom large. The dollar’s current weakness underscores investor anxiety over slowing US growth and inflationary pressures, while rival currencies such as the euro, sterling, yen, and yuan capitalize on the shift in sentiment.
According to Point Trader Group, the coming weeks will be crucial for forex traders, with central bank decisions – especially from the Federal Reserve – setting the tone for market direction across global currencies.