Dollar Gains as Fed Signals Potential Rate Cuts Amid Slowing Economy

The U.S. dollar rose on Tuesday ahead of Federal Reserve Chair Jerome Powell's Congressional testimony, with investors anticipating potential interest rate cuts due to a slowing economy and lower inflation. Powell may indicate that the Fed's confidence is boosted by recent data. Other currencies showed varied performances.

The U.S. dollar appreciated on Tuesday prior to Federal Reserve Chair Jerome Powell's testimony before Congress. Investors are keenly watching for any hints regarding potential interest rate cuts, as recent economic data suggests a slowdown. With the labor market weakening and inflation approaching the Fed's 2% target, Powell might present a more accommodating economic outlook.

During the Federal Reserve's June meeting, officials anticipated only one rate cut for the year, a decrease from the three cuts expected in March, following unexpectedly high inflation in the first quarter. Marc Chandler, chief market strategist at Bannockburn Global Forex, suggested that Powell might acknowledge that the current interest rate projections are outdated and highlight the Fed's increased confidence in the economic slowdown and inflation trends.

Market expectations have shifted, with traders now predicting two rate cuts by December, starting with one in September. The week's economic focus is on Thursday's consumer price index for June, predicted to show modest monthly increases. On the dollar index, the U.S. currency rose 0.11%, whereas the euro experienced minor declines after recent political turmoil in France. Other currencies like the Japanese yen and British sterling showed slight gains against the dollar.

(With inputs from agencies.)