Dollar Dips Before Inflation Data Amid Debate Anticipation

The dollar weakened against major currencies ahead of key U.S. inflation data and a presidential debate. The Federal Reserve is expected to cut interest rates for the first time in over four years, with market expectations leaning towards a 25 basis point cut. Global economic sentiment and Chinese data also influence the dollar's movements.

The dollar weakened against major currencies on Tuesday, consolidating Monday's gains ahead of pivotal U.S. inflation data and a widely anticipated presidential debate. Despite these events, their outcomes are unlikely to significantly alter monetary policy, as the Federal Reserve is expected to cut interest rates next week for the first time in over four years.

The futures market is currently pricing in a 73% chance of a 25 basis point cut at the September 17-18 policy meeting, with a 27% probability of a 50 basis point cut, according to LSEG calculations. Last Friday, hints of a 50-bp cut rose to 50% after a mixed U.S. labor report.

Helen Given, FX trader at Monex USA in Washington, noted that markets are in a holding pattern ahead of the consumer price index (CPI) release tomorrow, though election jitters and Chinese economic sentiment are creating some market tension. China's import growth and earlier-released inflation data were weaker than expected, highlighting soft domestic demand and slightly weakening the yuan against the dollar.

(With inputs from agencies.)