The U.S. dollar extended losses on Tuesday as investors reassessed the Federal Reserve’s policy trajectory following a batch of mixed economic data from the world’s largest economy.
The ICE U.S. Dollar Index, which tracks the greenback against a basket of six major currencies, fell 0.3% to 104.15, extending a decline from the previous session. The pullback followed softer-than-expected U.S. durable goods orders and a downward revision to consumer confidence figures, which tempered expectations for aggressive monetary tightening.
Traders cited reduced bets on a 25-basis-point rate hike by the Fed at its next policy meeting as a key driver of the dollar’s retreat. Fed funds futures implied a roughly 55% probability of such a move, down from about 70% a week earlier, according to CME Group’s FedWatch tool.
The euro strengthened 0.4% to $1.0850, while the Japanese yen gained 0.3% to 154.20 per dollar. The British pound also advanced 0.2% to $1.2720, supported by signs of cooling inflation in the U.K.
Market attention now turns to Friday’s U.S. core Personal Consumption Expenditures (PCE) price index and next week’s nonfarm payrolls report, which could provide further clarity on the Fed’s policy path. Economists polled by Reuters expect core PCE to rise 0.3% month-on-month in March, matching February’s pace.
Analysts at Goldman Sachs noted that while the dollar’s recent pullback reflects short-term positioning adjustments, the medium-term outlook remains tied to the Fed’s inflation trajectory. "The dollar’s weakness is likely to persist if inflation continues to moderate, but a reacceleration could quickly reverse the trend," the bank said in a client note.
The greenback has declined about 1.5% from its 2024 peak in mid-April but remains up roughly 3% year-to-date, supported by higher-for-longer U.S. interest rates relative to other major economies.
