Dollar Rebounds Amid Fed Rate Cut Speculations, Yuan Eases Post Stimulus

The dollar rebounded from a 14-month low against the euro, with traders anticipating another major Federal Reserve interest rate cut in November due to weakening labor market optimism. Meanwhile, the yuan fell amid skepticism over the effectiveness of China's latest economic stimulus measures.

The dollar bounced back from a 14-month low against the euro on Wednesday as investors bet on another significant interest rate cut by the Federal Reserve during its November meeting, fueled by declining labor market optimism. Meanwhile, the yuan eased, reflecting growing doubts about the impact of China's latest stimulus measures.

The greenback took a hit on Tuesday following a report that revealed a significant drop in U.S. consumer confidence in September—the largest decrease in three years—amid increasing concerns over the labor market. "The narrowing in the labor market differential is a bad omen for the U.S. economy," said Karl Schamotta, chief market strategist at Corpay.

Schamotta added that the markets are seeing this as a confirmation of the likelihood of another emergency-sized rate cut by the Fed in November. Traders are now pricing in a 59% chance of a 50-basis point cut, up from 37% last week, according to CME Group's FedWatch Tool. The euro fell 0.41% to $1.1134, while the dollar index climbed 0.68% to 100.91. The yuan fell to 7.033 in offshore trading after peaking at 6.9952, the highest since May 2023.

(With inputs from agencies.)