The euro fell in European trading on Tuesday against a basket of global currencies, retreating from a two-week high versus the US dollar, pressured by profit-taking activity and a reluctance to build new long positions ahead of key eurozone inflation data for August.

The data is expected to clarify the current inflationary pressures facing European Central Bank policymakers, providing crucial evidence on the likelihood of an interest rate cut later this month.

Price Overview

• Euro exchange rate today: the euro declined against the dollar by 0.2% to $1.1691, from the opening level of $1.1711, after recording a high at $1.1718.

• The euro ended Monday’s session up by more than 0.2% versus the dollar, marking a third consecutive daily gain, and hit a two-week high at $1.1736, supported by stronger-than-expected inflation data in Germany, the eurozone’s largest economy.

US Dollar

The US dollar index rose on Tuesday by about 0.2%, heading toward its first gain in six sessions, rebounding from a five-week low at 97.54 points, reflecting renewed strength in the greenback against a basket of global currencies.

Beyond bargain-buying from lower levels, the recovery in the US dollar comes ahead of a series of key US labor market reports, which will provide decisive evidence on the likelihood of a Federal Reserve rate cut at the September meeting.

European Interest Rates

• Five sources told Reuters that the European Central Bank is likely to keep interest rates unchanged next month, though discussions of further cuts could resume in the fall if the eurozone economy weakens.

• ECB President Christine Lagarde said recently in Jackson Hole that the tightening cycle implemented in 2022 and 2023 did not lead to recession or sharp rises in unemployment as had historically been the case.

• Money market pricing for a 25-basis-point ECB rate cut in September currently remains below 30%.

Eurozone Inflation

To reprice these expectations, investors later today await the release of key eurozone inflation data for August, which will show the extent of inflationary pressures facing ECB policymakers.

At 10:00 GMT, the annual consumer price index for the eurozone will be published, with market forecasts pointing to an increase of 2.1% in August, compared to 2.0% in July. Core CPI is expected to rise by 2.2%, versus 2.3% in the previous reading.

Outlook for the Euro

• At Economies.com we expect: if inflation data proves hotter than current market expectations, the likelihood of further ECB rate cuts this year will decline, supporting a stronger euro in the foreign exchange market.

The Japanese yen fell in Asian trading on Tuesday against a basket of major and minor currencies, extending its losses for a third consecutive session against the US dollar, as the likelihood of the Bank of Japan raising interest rates later this month weakened.

Easing inflationary pressures on the central bank have reduced expectations for near-term policy normalization, with investors awaiting further evidence on the future path of interest rates in the world’s fourth-largest economy.

Price Overview

• Yen exchange rate today: the dollar rose against the yen by about 0.4% to ¥147.73, from the opening level of ¥147.17, after recording a low at ¥147.05.

• The yen ended Monday’s session down 0.1% versus the dollar, marking a second straight daily decline.

US Dollar

The US dollar index rose on Tuesday by around 0.2%, heading toward its first gain in six sessions, rebounding from a five-week low at 97.54 points, reflecting renewed strength of the greenback against a basket of global currencies.

In addition to bargain buying from lower levels, the rebound in the US dollar comes ahead of a series of key US labor market data, which will provide critical clues on the likelihood of a Federal Reserve rate cut at its September meeting.

Japanese Interest Rates

• Bank of Japan board member Nakagawa warned of trade policy risks and pointed to the upcoming Tankan report as guidance on the path of policy normalization.

• Recent price data in Japan shows waning inflationary pressures on the central bank’s policymakers.

• Market pricing for a 25-basis-point rate hike at the September BoJ meeting is currently steady at 35%.

• To reprice these expectations, investors are awaiting additional data on inflation, unemployment, and wages in Japan, along with comments from BoJ officials.

Gold hit its highest level in more than four months on Monday, trading within about $23 of its all-time peak, supported by expectations of a Federal Reserve rate cut and a weaker US dollar, while silver broke above $40 an ounce for the first time since 2011.

Spot gold rose 0.9% to $3,477.56 an ounce by 9:37 a.m. Eastern Time (1337 GMT), its highest since April 22 when it touched the record of $3,500.05. December gold futures climbed by the same 0.9% to $3,547.70.

Spot silver jumped 2.6% to $40.69 an ounce, its highest since September 2011.

Markets in the United States were closed on Monday for the Labor Day holiday.

The US dollar index fell close to its lowest since July 28 against a basket of currencies, making dollar-priced bullion cheaper for overseas buyers.

Ole Hansen, head of commodity strategy at Saxo Bank, said: “Gold, and especially silver, extended strong gains from Friday, supported by sticky US inflation, weak consumer confidence, and rate-cut expectations … alongside concerns over Federal Reserve independence.”

Data on Friday showed the US Personal Consumption Expenditures (PCE) index rose 0.2% month-on-month and 2.6% year-on-year, in line with expectations.

Tim Waterer, chief market analyst at KCM Trade, said: “Silver is moving higher in response to rate cut expectations, while tight supply in the market is helping to reinforce the bullish trend.”

Mary Daly, president of the San Francisco Federal Reserve, last week reiterated her support for rate cuts in a social media post, citing risks tied to the labor market.

Giovanni Staunovo, analyst at UBS, said: “The market is looking ahead to Friday’s US jobs report, expecting it will allow the Fed to resume rate cuts starting in September, which supports investment demand.”

A Reuters poll forecasts nonfarm payrolls increased by about 78,000 in August, compared with 73,000 in July.

Gold, which yields no interest, typically performs well in a low-rate environment.

In a separate development, US Trade Representative Jamieson Greer said Sunday that President Donald Trump’s administration continues discussions with trade partners despite a US court ruling that deemed most tariffs illegal.

Among other precious metals, platinum rose 3.2% to $1,408.54, while palladium gained 1.9% to $1,129.70.

US markets are closed on Monday for Labor Day, with stock and bond trading set to resume on Tuesday.

Government data released last Friday showed that the US Personal Consumption Expenditures (PCE) index — the Federal Reserve’s preferred gauge of inflation — rose strongly in July, while core inflation accelerated as tariffs pushed up the cost of certain goods. The PCE index rose 0.2% month-over-month and 2.6% year-over-year, both in line with expectations.

Traders increased their bets that the Federal Reserve will cut interest rates by 25 basis points at its September policy meeting, raising the probability of this scenario to about 89%, up from 85% before the data release, according to the FedWatch tool.

At Friday’s close, the Dow Jones Industrial Average fell 0.2% (92 points) to 45,545, posting a 0.2% weekly loss but a 4.5% monthly gain. The index recorded a high of 45,616 and a low of 45,377.

The broader S&P 500 declined 0.6% (41 points) to 6,460, logging a 0.1% weekly loss but a 3.6% monthly gain in August. It touched a high of 6,491 and a low of 6,444.

The Nasdaq dropped 1.2% (249 points) to 21,455, with a 0.2% weekly loss but a 3.9% monthly gain. The tech-heavy index reached a high of 21,631 and a low of 21,398.