The U.S. dollar experienced continued pressure on Tuesday following disappointing manufacturing activity data, which raised expectations of an impending interest rate cut by the Federal Reserve during its upcoming policy meeting. At the start of the Asian trading session, the U.S. dollar index (DXY), which gauges the dollar’s strength against a basket of six major currencies, slipped to 99.408. This marked a decline for the seventh consecutive session and reached a two-week low during Monday’s trading as stock and bond markets retreated.
Data released on Monday revealed that U.S. manufacturing had contracted for the ninth consecutive month in November, as indicated by the Institute for Supply Management’s manufacturing PMI, which fell to 48.2, down from 48.7 the previous month. Additionally, measures of new orders and employment showed significant deterioration, while rising input prices reflected the ongoing impact of import tariffs.
Brian Martin, head of G3 economics at ANZ in London, remarked, “It all suggests to me that demand in the economy has decelerated.” He underscored the need for the Federal Reserve to not only cut rates in December but also to implement further reductions next year, predicting an additional 50 basis points in cuts by 2026.
Market expectations have shifted considerably, with Fed funds futures indicating an 88% likelihood of a 25-basis-point cut at the central bank’s next meeting on December 10, compared to a 63% chance just a month prior, as per the CME Group’s FedWatch tool.
In global bond markets, the yield on the U.S. 10-year Treasury bond rose to 4.086% following a selloff on Monday. Meanwhile, against the Japanese yen, the dollar traded at 155.51 yen, remaining stable from late U.S. trading hours. This stability followed comments from Bank of Japan Governor Kazuo Ueda, who indicated that the central bank would evaluate the potential implications of raising interest rates at its next meeting. Consequently, Japanese two-year yields surpassed 1% for the first time since 2008.
The euro held steady at $1.1610, remaining unchanged amid ongoing discussions aimed at resolving the conflict in Ukraine. European leaders have rallied around Ukrainian President Volodymyr Zelenskiy in light of a recent U.S.-backed peace proposal perceived as favoring Russia. Meanwhile, a U.S. special envoy is set to visit Moscow for further negotiations with the Kremlin.
The British pound traded at $1.3216, close to its highest levels in a month, showing minimal fluctuations for the day. This steadiness comes in the wake of the resignation of the head of Britain’s fiscal watchdog, which occurred after the agency accidentally disclosed key details of the government’s upcoming tax and spending budget before finance minister Rachel Reeves could present them in Parliament.
In the Asia-Pacific region, the Australian dollar was quoted at $0.6544, while the New Zealand dollar traded at $0.5727, both showing little change at the onset of the Asian trading session.
