US Dollar posts recovery after period of weakness

The dollar edged higher on Tuesday after dropping to its lowest levels against the Euro and Sterling since mid-March overnight. This decline was driven by indications of a weakening U.S. economy, which strengthened the argument for the Federal Reserve to cut interest rates sooner.

Currency markets were anticipating the U.S. job openings data later in the day, which will offer insights into the state of the labor market and potentially drive the U.S. currency lower.

The Euro peaked as high as $1.0916, its highest level since mid march, before ultimately retreating to $1.0884. Sterling also reached its highest level since mid-March at $1.2818 but subsequently fell, last down by a touch over 0.2%.

As the U.S. currency stabilized, the dollar index rose 0.12% to 104.16, after having dropped to its lowest point since mid-April at 103.99 overnight.

Data released on Monday revealed a second consecutive month of slowing manufacturing activity and an unexpected drop in construction spending, leading to a roughly 0.6% decline in the dollar index. The U.S. currency's decline against its peers has been driven by investors increasing their bets on Federal Reserve rate cuts this year. This has lowered Treasury yields, making U.S. debt appear less attractive.

According to LSEG data on derivatives prices, markets raised the likelihood of a rate cut in September to around 59.1% on Tuesday. This is up from approximately 55% on Friday and just below 50% earlier last week.

The European Central Bank has signaled that policymakers will cut rates at their meeting on Thursday. However, last week's inflation data showing an uptick might cause officials to reconsider the timing of the next rate cut.

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