Dollar Slump as Traders Eye Fed Rate Cuts Amid Labor Market Concerns

The dollar hit a 14-month low against the euro as traders anticipate another large rate cut by the Federal Reserve at its November meeting due to weakening U.S. labor market optimism. The yuan and other risk-sensitive currencies also saw fluctuations amid skepticism about new Chinese economic stimulus measures.

The dollar plunged to a 14-month low against the euro on Wednesday, driven by traders betting on another substantial rate cut from the Federal Reserve at its November meeting due to waning optimism in the U.S. labor market. Concurrently, the yuan slipped as doubts grew regarding the effectiveness of China's latest stimulus efforts.

The dollar's decline began Tuesday following data showing U.S. consumer confidence had its steepest fall in three years in September, raising alarms over the labor market. 'The narrowing labor market differential points to adverse demand and supply conditions, signaling a grim outlook for the U.S. economy,' said Karl Schamotta, chief market strategist at Corpay.

Traders now predict a 59% chance of a 50-basis point cut at the Fed's Nov. 7 meeting, up from 37% a week ago, according to the CME Group's FedWatch Tool. The euro advanced 0.04% to $1.1185, reaching its highest since July 2023 at $1.1214. Despite weak German data, the euro has maintained strength against the dollar.

(With inputs from agencies.)