Dollar slides to 5-week low as euro climbs on ECB outlook
The dollar weakened to a five-week low on Monday, 1 September, as investors shifted focus to upcoming US labor market data that could shape the Federal Reserve’s policy path.
The dollar index fell 0.22% to 97.64 on Monday, hitting 97.55 earlier in the day - the lowest level since July 28. The dollar dropped 2.2% in August as traders increased bets on Federal Reserve rate cuts.
Markets now see a 90% probability of a 25-basis-point Fed cut in September. CME FedWatch data shows traders expect about 100 basis points of rate reductions by autumn 2026. However, analysts note that strong job market data could change these expectations.
The euro climbed 0.4% to $1.1728 after reaching a 10-day high of $1.1733. The European Central Bank may have finished its rate-cutting cycle, according to market interpretations. Primoz Dolenc, interim head of Slovenia's central bank, told local media that more cuts are unlikely. Markets viewed his comments as a tougher policy stance.
The Chinese yuan held steady at 7.1326 per dollar. Strong central bank daily rate settings and rising Chinese stocks supported the currency. A private survey showed China's manufacturing activity grew at its fastest rate in five months. This contrasted with official government data that showed factory activity still shrinking.
Sterling rose 0.2% to $1.3529. Analysts point to seasonal weakness and budget concerns as potential challenges for the British pound in September.
Political uncertainty is affecting currency markets:
- France's government faces a confidence vote that could create instability in the eurozone.
- In the United States, investors are watching trade policy tensions and questions about Fed independence.
- President Donald Trump is attempting to remove Fed Governor Lisa Cook from her position.
The Chinese yuan held steady at 7.1326 per dollar. Strong central bank daily rate settings and rising Chinese stocks supported the currency. A private survey showed China's manufacturing activity grew at its fastest rate in five months. This contrasted with official government data that showed factory activity still shrinking.
So, traders are keeping a close eye on this week’s U.S. jobs report and the Fed’s September meeting, while hints from the European Central Bank are giving the euro some support. At the same time, political uncertainty on both sides of the Atlantic is making trading decisions more complicated.
Recommended