The US dollar weakened amid anticipation of central bank meetings expected to
include a Federal Reserve rate cut, while investors cautiously watched
President Donald Trump’s Asia tour, notably his upcoming meeting with Chinese
President Xi Jinping. Optimism over a potential US-China trade deal has buoyed
markets but skepticism remains regarding long-term benefits.
Dollar Slides Ahead of Key Central Bank Meetings
The US dollar slipped on Tuesday, as investors awaited several major central bank decisions this week, notably by the Federal Reserve, Bank of Japan, European Central Bank, and Bank of Canada. Markets broadly expect at least a 25 basis points rate cut from the Fed during its two-day policy meeting starting Tuesday, prompted by softer inflation data and signs of slowing labour markets. The dollar index, which measures the greenback against a basket of six major currencies, eased by 0.19% to 98.58, falling after a 0.15% dip in the prior session.Trump’s Asia Tour Spurs Trade Optimism
Investors kept a wary eye on US President Donald Trump’s Asia tour, with hopes for progress on trade relations with China. Trump met Japan’s new Prime Minister Sanae Takaichi on Monday in Tokyo, where they discussed defence, trade, and the implementation of a $550 billion US investment package spanning infrastructure, clean energy, and technology projects.The main highlight of the week remains Trump’s scheduled meeting with Chinese President Xi Jinping set for Thursday in South Korea, during the Asia-Pacific Economic Cooperation (APEC) summit. Trump expressed confidence before arriving in Tokyo, saying,
“I have a lot of respect for President Xi, and we’re going to come with a deal.”
Negotiators in Kuala Lumpur recently agreed on a draft
framework intended to avert new tariffs, which is expected to be reviewed and
finalised during the Trump-Xi meeting. Chinese officials, however, have
remained cautious and have disclosed few details about potential outcomes,
contributing to continued market calm.
Currency Market Movements Reflect Cautious Optimism
The euro reached a one-week high against the dollar, trading at $1.1668 on Tuesday, boosted by the weakening greenback and positive risk sentiment. Similarly, the British pound rose to $1.3368, marking an increase of 0.25% for the day.The Japanese yen strengthened over 0.6%, trading at 151.855
per dollar, despite pressure observed earlier in the week ahead of the Bank of
Japan’s policy decision expected on Wednesday, where a hold on rates is widely
anticipated.
The Australian dollar rose modestly by 0.11% to a two-week
high of $0.6563, and the New Zealand dollar inched higher to $0.5782.
Federal Reserve and Other Central Banks in Focus
The Federal Reserve meeting will be closely watched, with markets largely pricing in a 25 basis point rate cut owing to moderate inflation readings and signs of labour market cooling. ANZ's head of exchange research, Jabe Zaman, said in a podcast that“Fed cuts are entirely expected for the meetings in October and December. Therefore, any cautious messaging from the Fed could further bolster the US dollar.”
In Europe, the European Central Bank is also scheduled to announce
its policy decision, while the Bank of Japan’s forthcoming meeting is expected
to keep rates steady, though its commentary will be closely analysed for
indications under Japan’s new Prime Minister Sanae Takaichi.
Impact on Emerging Markets and Other Currencies
Emerging market currencies demonstrated mixed performance. Argentina’s peso was one of the best-performing currencies recently, surging nearly 10% against the US dollar following a political victory for Javier Milei’s La Libertad Avanza party in the midterm elections. The strengthening peso marks a turnaround from previous forecasts of currency devaluation.Meanwhile, the Pakistani rupee slipped back below 281
against the US dollar amid the broader dollar weakness and local economic
factors.
Market Sentiment and Outlook
Despite optimistic signals from recent trade negotiations, market participants remain cautious about the prospect of any major breakthrough with long-lasting impacts. The dollar's recent decline on Monday was driven by a risk rally sparked by thawing trade tensions, yet uncertainty about the final terms between the US and China keeps investors vigilant (Reuters).The upcoming Trump-Xi summit and central bank monetary policy announcements will be decisive in shaping market direction for the coming weeks, as traders gauge the balance between easing monetary policy and the geopolitical trade landscape.