Dollar recovers off 5 week lows

On Tuesday, the dollar slightly recovered from its five-week lows as investors assessed the likelihood of a September rate cut following comments from Fed Chair Jerome Powell and considered the increasing chances of former U.S. President Donald Trump being re-elected.

The euro remained steady at $1.09 levels, close to the four-month high it reached on Monday, having recovered all the losses incurred over the past few weeks due to uncertainty surrounding the French election.

Investor attention will be directed towards the European Central Bank's policy meeting on Thursday. While rates are expected to remain unchanged, remarks from Chief Christine Lagarde will be closely monitored to gauge the timing of the next rate cut. Markets are currently anticipating 48 basis points (bps) of cuts from the ECB this year.

On Monday, Powell stated that the three U.S. inflation readings from the second quarter "add somewhat to confidence" that the pace of price increases is sustainably returning to the Federal Reserve's target. These remarks, likely Powell's last before his press conference following the Fed meeting on July 30 and 31, altered expectations regarding rate cuts.

Markets now expect 68 basis points of easing this year, with a September rate cut fully priced in. The dollar index, which measures the U.S. currency against six major peers, rose by 0.12% to 104.36, just above the one-month low of 104 it reached on Monday.

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