Dollar Decline: Federal Reserve's Rates Anticipation Sways Markets

The U.S. dollar hit a low against the euro as investors anticipate a Federal Reserve interest rate cut. The euro reached its highest since September 2021, with the dollar index also declining. Softening labor market data and economic projections suggest potential further rate cuts by the Fed.

The dollar experienced significant declines across major currencies on Tuesday, hitting a four-year low against the euro. This drop comes as investors expect an imminent interest rate cut by the Federal Reserve. The euro climbed by 0.9% to $1.1867 on Tuesday, a peak since September 2021.

The U.S. dollar index, tracking the dollar against six major currencies, dropped by 0.7% to 96.636, the lowest since July 1. A contributing factor is speculation about aggressive rate cuts by the Fed, prompted by new economic data and U.S. President Donald Trump's calls for monetary easing.

This anticipation has prodded markets to foresee a 25-basis-point cut this week. Key to this outlook is the weakened labor market data noted in recent weeks. Traders are bracing for dovish signals in Wednesday's Federal Reserve meeting, with Chairman Jerome Powell expected to highlight potential further rate cuts to bolster the labor market.

(With inputs from agencies.)