The US dollar steadied near its lowest level in several weeks on Tuesday, as investors assessed the likelihood of an imminent interest rate cut, alongside uncertainty over the fate of US tariffs.

By 04:39 a.m. Eastern Time (08:39 GMT), the dollar index – which measures the performance of the US currency against a basket of major peers – rose 0.6% to 98.30, but remained close to the five-week low it touched on Monday. In contrast, the euro fell against the dollar following the release of fresh inflation data from the eurozone, while the British pound dropped 1.0%.

US Employment Data in Focus

Traders this week are focused on the August nonfarm payrolls report, due Friday, which will be crucial in cementing bets on the Federal Reserve cutting interest rates at its September 16–17 meeting. Data from the CME FedWatch tool shows markets are pricing in an 87% chance of the Fed lowering its benchmark rate by 25 basis points.

These expectations were reinforced after Fed Chair Jerome Powell, at an economic symposium last month, said policymakers were ready to adjust policies if inflation continued to ease and the labor market showed signs of slowing. Analysts at ING wrote in a note: “Remember that the July jobs report – particularly the negative revisions totaling 258,000 jobs for previous months – was the reason behind the reversal of the dollar rally in July, which pushed Fed Chair Jerome Powell to open the door to a September rate cut.”

They added: “Again, the focus is expected to fall heavily on subsequent monthly revisions, given that only 60% of survey participants respond in the first month.”

Later on Tuesday, data on US manufacturing activity from the Institute for Supply Management (ISM) is due, to be followed this week by a services-sector reading, which accounts for more than two-thirds of activity in the world’s largest economy, while manufacturing represents about 10% of GDP.

Uncertainty Over US Tariffs

At the same time, the fate of US tariffs remains unclear. A US appeals court ruled last week that most of the tariffs imposed by President Donald Trump were illegal, a decision that could undermine one of his main economic policy tools and a bargaining chip in international negotiations. However, the court left the tariffs in place until October 14, to allow time for the Trump administration to appeal to the US Supreme Court.

The impact of tariffs remains a persistent question for markets and also for the Federal Reserve in shaping its policies. Despite Trump’s repeated calls for rapid rate cuts, the Fed this year has maintained a more cautious “wait-and-see” stance before making any significant monetary policy decisions.

In a separate development, Trump recently pushed to dismiss Fed Governor Lisa Cook, raising expectations that the White House may seek to appoint rate-setters more inclined toward advocating faster interest rate cuts.

Gold prices rose in European trading on Tuesday, extending gains for the sixth consecutive session and surpassing the key psychological level of $3,500 an ounce for the first time in history. The precious metal’s rally to new record highs in latest intraday trading was capped by a rebound in US dollar levels.

With strong current expectations that the Federal Reserve will cut interest rates at its September meeting, global financial markets await more key US labor market data throughout this week.

Price Overview

• Gold prices today: gold rose by 0.95% to $3,508.77, the highest on record, from the opening level of $3,476.46, with a low at $3,474.57.

• At Monday’s settlement, gold gained 0.8%, marking a fifth consecutive daily rise, supported by a weaker dollar and lower US Treasury yields.

US Dollar

The US dollar index rose on Tuesday by about 0.2%, on track for its first gain in six sessions, recovering from a five-week low of 97.54 points, reflecting a rebound in the greenback against a basket of global currencies.

The recovery in dollar levels came on the back of bargain-buying from lower levels, alongside reluctance to build new short positions ahead of a series of key US economic data releases.

US Treasury Secretary Scott Bessent said on Monday that the Federal Reserve is independent and should remain so, but added that it has “made many mistakes,” defending President Trump’s right to dismiss Fed Governor Lisa Cook over alleged mortgage fraud.

US Interest Rates

• In a social media post on Friday, San Francisco Fed President Mary Daly reaffirmed her support for rate cuts, citing risks threatening the labor market.

• According to CME Group’s FedWatch tool: market pricing currently places the probability of a 25-basis-point rate cut in September at 90%, with a 10% probability of no change.

• Market pricing for a 25-basis-point rate cut in October is currently stable at 95%, with a 5% probability of no change.

• To reprice September expectations, markets now await a series of key US labor market data: Wednesday’s JOLTS job openings for July, Thursday’s US private sector employment and weekly jobless claims, and Friday’s nonfarm payrolls report for August.

Outlook for Gold

Kyle Rodda, market analyst at Capital.com, said that a weaker economic outlook and expectations of US interest rate cuts continue to support precious metals.

Rodda added: among other factors supporting gold prices is a deepening crisis of confidence in US financial assets due to President Donald Trump’s attack on the Federal Reserve.

SPDR Fund

Gold holdings with SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, were unchanged yesterday, with the total remaining at 977.68 metric tonnes, the highest since August 29, 2022.

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.