TOKYO — The dollar wallowed near its lowest in nearly four years against the euro on Monday as market optimism over US trade deals bolstered bets for earlier Federal Reserve interest rate cuts.
The greenback also languished near a four-year low versus sterling and a more than decade trough to the Swiss franc after Washington and China moved closer to a tariff agreement, even as US President Donald Trump injected some uncertainty into the market’s bullish narrative by abruptly cutting off trade talks with Ottawa.
Investors interpreted Fed Chair Jerome Powell’s testimony to US Congress last week as dovish, after he said that rate cuts were likely if inflation does not spike this summer due to tariffs.
Bets for at least one quarter-point reduction by September have risen to 92.4 percent according to CME Group’s FedWatch Tool, from about 70 percent a week earlier. The Fed’s rate-setting committee also meets next month, but does not gather in August.
“The market pricing implies a cut as a slam dunk” in September, Chris Weston, head of research at Pepperstone, wrote in a client note.
Friday’s monthly US payrolls report is “the marquee risk event” this week, Weston said, and the risk to the dollar “seems asymmetric given the Fed’s reaction function is biased towards the timing of the next cut.” That means the dollar is more likely to suffer a rout on weak numbers than rally on a hot outcome, he said.
