Dollar struggles amidst growing rate cut expectations and weak economic data

The US dollar remained on a downtrend, although it stabilized to a certain extent in the early European session. Growing expectations of potential interest rate cuts by the Federal Reserve could continue to weigh on the dollar.

Traders are increasingly betting on a 25-basis point cut in September, with the market pricing in a total of three rate cuts by the end of the year.

However, some caution could remain as traders anticipate the Federal Reserve’s Chair Jerome Powell’s upcoming speech at the Jackson Hole symposium, where further clarity on the Fed’s monetary policy direction is expected.

The expectation of monetary easing has led to a sharp drop in the dollar index to its lowest level since April. Concurrently, other major currencies, such as the euro and the British pound could benefit from the dollar’s weakness in particular if their respective central banks cut rates more slowly.

Later this week, expected weakness in the US Manufacturing and Services PMIs could lead to a further decline in the U.S. dollar and could weigh on U.S. Treasury yields.