Dollar stays under pressure

The dollar index held at 99.4 on Tuesday after touching a two-week low on Monday, as expectations continued to build for a Federal Reserve interest-rate cut next week.

Traders are now pricing in an 88% probability that the Fed will lower rates by 25bps at its upcoming meeting, reflecting growing confidence that policymakers are preparing to ease financial conditions amid weakening economic momentum.

Political developments have added to the dovish narrative. President Donald Trump said on Sunday that he had selected the next Fed Chair, with reports indicating that White House National Economic Council Director Kevin Hassett is a leading contender.

Hassett is widely viewed as supportive of lower interest rates, aligning with Trump’s longstanding preference for more accommodative policy. Markets interpreted the news as another signal that the central bank may adopt a softer stance in the months ahead.

Investor attention is now turning to a speech from Fed Chair Jerome Powell later today, which could offer additional clarity on the outlook for monetary policy. Any hints of concern about the economic slowdown or acknowledgment of rising recession risks could reinforce expectations of near-term rate cuts.

Fresh data released on Monday also supported the case for easing. US factory activity contracted for the ninth month in a row and at the fastest pace in four months, underscoring persistent weakness in the manufacturing sector.

Sluggish demand, shrinking new orders and ongoing cost pressures have weighed heavily on production, contributing to a broader narrative of cooling economic conditions.

Combined with recent soft labor-market indicators, the data has strengthened the belief that the Fed will move ahead with a cut next week.