Dollar Plunges to Seven-Month Low on Rate Cut Bets

20 Aug 2024 , 09:27 AM

The dollar hovered near a seven-month low on Tuesday on speculation that the US central bank may begin cutting interest rates next month, with traders anticipating comments from Federal Reserve Chair Jerome Powell on Friday.

The dollar’s decline pushed the euro to its highest level this year, while sterling hovered near a one-month high. The developing markets currency index, which opens a new tab, was also at a record high.

The Japanese yen was slightly firmer at 146.50 per dollar, close to the near two-week high reached in the previous session but still a long way from the seven-month peak of 141.675 reached at the beginning of August.

The focus this week will be on Powell’s speech in Jackson Hole, which will likely deter investors from placing large wagers before the event.

Investors expect Powell to acknowledge the rationale for a rate drop and will interpret his words to determine whether the Fed will begin with a 25 basis point or 50 basis point cut in September.

The euro last traded at $1.1080 on Tuesday, having reached its highest since December 28 in early trading. The single currency is up 2.4% this month, on track for its best monthly performance since November.

The pound held steady at $1.2985 in early trading after reaching a one-month high of $1.2998 the previous day.

On Tuesday, the dollar index, which measures the US currency against six rivals, fell to 101.82, its lowest since January 2. The index fell more than 2% in August and is on track for its second consecutive month of losses.

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