Investing.com - The U.S. dollar remained stable on Tuesday as investors eagerly anticipate the release of crucial economic data, specifically Friday's U.S. payrolls report. This data could solidify expectations for an interest rate cut from the Federal Reserve later this month.
At 04:05 ET (09:05 GMT), the Dollar Index, which monitors the dollar against a basket of other currencies, traded around 101.617, staying close to Monday's two-week high of 101.79. In August, the index saw a 2.2% decline due to anticipations of U.S. rate cuts.
Dollar Focuses on Labor Market
The U.S. will be releasing key economic indicators this week, starting with the manufacturing sector data, which is expected to show continued contraction. However, all eyes are on the labor market, as Fed policymakers seek confirmation to start easing monetary policy. This follows Fed Chair Jerome Powell's endorsement last month for imminent interest rate cuts, addressing concerns about the labor market.
Friday's employment report will be the highlight of the week, especially after the previous month's report fell short of expectations, leading to a significant market selloff. Additionally, data on Wednesday and the report on Thursday will be closely watched.
Market expectations suggest a 69% chance of a 25 basis points cut during the Fed meeting on Sept. 17-18, with a 31% probability of a 50-bps cut, as per the CME FedWatch tool.
Euro Nears Two-Week Low
In Europe, the euro traded slightly lower at 1.1061, nearing a two-week low. This followed data showing that eurozone manufacturing activity remained in contraction territory in August. The European Central Bank had cut interest rates in June and is likely to do so again this month, especially after inflation fell to 2.2% in August.
Traders are also monitoring the political situation in Germany after the far-right Alternative for Germany party's recent state legislature win, raising concerns about the ruling coalition's stability and potential impact on the euro.
The British pound dropped to 1.3129, with a quiet data calendar for the U.K. this week. Despite a strong performance in August, gaining over 2% in the last month, boosted by expectations of high interest rates from the Bank of England.
Yen Bounces Back
In Asia, the yen fell to 146.03, retracting from a two-week high reached on Monday after Japan's factory activity contracted in August. The Chinese yuan and Australian dollar also saw changes ahead of key economic reports.
Overall, the financial markets are bracing for potential rate cuts and economic indicators that could impact global currencies and stock markets. Investors should stay informed and prepared for possible market volatility in the coming weeks.