Dollar Strengthens Amid Fed Rate Speculations as Global Currencies React

The dollar gained on Tuesday following Federal Reserve Chair Jerome Powell's comments indicating a cautious approach to further significant rate cuts. Various global currencies, including the yen and the euro, experienced fluctuations in response to domestic economic data and geopolitical developments. Powell's speech set the tone for the U.S. economic outlook, affecting global markets.

The dollar rallied on Tuesday after Federal Reserve Chair Jerome Powell rebuffed speculations about more aggressive interest rate reductions. The yen maintained stability amid Japan's political leadership transition, with traders assessing the new prime minister and cabinet's economic stance.

The Australian dollar inched closer to Monday's peak following optimistic retail sales data, while the euro faced its third consecutive daily decline due to inflation data hinting at a potential rate cut. Powell, speaking at a Tennessee conference, signaled the Fed's preference for steady, quarter-percentage-point cuts moving forward.

Speculations lingered about the Fed's next move, with traders still expecting another rate cut in November, though the probability for a sharper 50 bps cut dropped. In Japan, Shigeru Ishiba's premiership signals potential hawkish monetary policies, while in Europe, declining German inflation bolstered expectations for more ECB cuts. The dollar's performance contrasted with repeated declines of other major currencies.

(With inputs from agencies.)