The dollar fell against major currencies amid expectations of interest rate cuts

Global markets on Tuesday witnessed a wave of decline of the US dollar, which fell to its lowest levels in several weeks and months against a basket of major currencies, as expectations that the US Federal Reserve is about to start a cycle of monetary policy easing strengthened.

Record levels of decline

The US dollar recorded a noticeable decline against its European counterpart, as the euro reached its highest level in two and a half months.

It also fell against the British pound to the lowest level in more than two months.

The most striking decline was against the Australian dollar (a very risk-sensitive currency), the latter recorded a 10-month high, reflecting the improved risk appetite of investors.

Fundamental driver: bets on a more encouraging monetary policy

The central reason for this pressure on the US currency is the growing expectations that the Federal Reserve will deliberately lower interest rates during its meeting on Wednesday.

The majority of market forecasts are directed to:

- Immediate cut: expect a cut of at least 25 basis points at Wednesday's meeting, with low expectations of a significant cut of 50 basis points.

- Expected March of reductions: market forecasts indicate a total reduction of about 67 basis points before the end of this year, to rise to 81 basis points by the end of January 2024.

This means that a rate cut is expected not only in September, but also at the October, December and, possibly, January meetings.

Political pressure from the White House

Former US President Donald Trump added an element of political pressure to the scene, as via a social media post on Monday, he called on Fed Chairman Jerome Powell to make a deeper cut in interest rates on Wednesday, referring to a cut of 50 basis points.

The main currencies today

EURUSD

The euro rose by 0.25% to 1.1790 US dollars, ahead of the release of German ZEW surveys and Italian consumer price inflation data.

GBPUSD

The British pound rose by 0.22% to 1.3632 US dollars for the first time since July 8, with the release of British employment data on Tuesday, before the Bank of England announced its monetary policy on Thursday, and no change is expected.

AUDUSD

The Australian dollar rose to 0.6677 US dollars, its highest level since November 8.

USDJPY

The dollar fell 0.5% to 146.78 yen, the Bank of Japan sets its monetary policy on Friday, and economists widely expect the BOJ to install an unchanged leader.