Dollar Declines to Four-Year Low Against Euro Before Fed Decision

The U.S. dollar experienced a significant decline on Tuesday, dropping to a four-year low against the euro as investors anticipated a potential interest rate cut by the Federal Reserve. The euro rose by 0.5% to reach $1.827, marking its highest value since September 2021. The U.S. dollar index, which measures the dollar against a basket of six major currencies, fell by 0.6% to 96.787, the lowest level since July 3.

This downturn follows a period where the dollar had stabilized after earlier declines. Renewed selling pressure emerged as expectations mounted for the Fed to resume cutting interest rates. U.S. President Donald Trump has also reiterated calls for aggressive monetary easing, contributing to market speculation.

Analysts predict a 25-basis-point rate cut during the Federal Reserve’s meeting on Wednesday, driven primarily by softening labor market data. “The dollar is trading with a heavy tone across the board as investors brace for a dovish message in Wednesday’s voting record and economic projections,” said Karl Schamotta, chief market strategist at Corpay. He noted that Jerome Powell and his colleagues may downplay inflation risks to support labor markets, potentially leading to further rate cuts in the coming months.

Despite a report on Monday indicating that U.S. retail sales increased more than expected in August, the dollar received little reprieve. Concerns about U.S. economic growth persist, particularly amidst labor market weaknesses and rising prices due to tariffs. Brian Jacobsen, chief economist at Annex Wealth Management, commented on the mixed economic signals, stating, “The consumer is down, but not out,” referencing a rebound in spending at food services and online retailers.

In addition to the dollar’s struggles, the British pound strengthened, rising 0.4% to $1.36530, a level not seen in over two months. This increase followed data showing a slight cooling in the British jobs market, potentially alleviating concerns regarding sustained inflation pressures. The Office for National Statistics reported that the number of workers on payrolls fell for the seventh consecutive month, while private sector wage growth slowed to 4.7% from 4.8% earlier in the year. The Bank of England is expected to maintain its interest rates during its upcoming meeting after a reduction in August.

The euro also found support from recent economic data showing a marginal increase in eurozone industrial production for July. This growth, although modest, reflects resilience in the sector amid ongoing trade tensions. Additionally, German investor sentiment unexpectedly rose in September, signaling cautious optimism, according to the ZEW research institute.

The dollar’s performance against the Japanese yen was similarly weak, slipping by 0.5% to 146.76 ahead of the Bank of Japan‘s policy meeting on Friday. Analysts anticipate that the central bank will maintain its current rate of 0.5%.

In the cryptocurrency market, bitcoin experienced a decline of 0.2%, trading at $115,145, marking its fourth consecutive day of losses.

As the Federal Reserve prepares to announce its decision, the financial markets remain on edge, closely monitoring the potential implications for the dollar and broader economic landscape.