The US dollar rose slightly on Monday, as traders await the Federal Reserve’s monetary policy meeting, which is expected to shape the outlook for foreign exchange markets during the fourth quarter of the year.
At 04:10 a.m. Eastern Time (08:10 GMT), the US dollar index – which measures the performance of the US currency against a basket of six major currencies – rose by 0.1% to 97.175, after losing more than 10% since the beginning of the year.
The Federal Reserve in Focus
The Federal Reserve is set to conclude its two-day meeting on Wednesday, where it is widely expected to cut interest rates after recent data showed a continued deterioration in the US labor market, while inflation in August did not rise as sharply as investors had feared.
According to the CME FedWatch tool, markets are pricing in a 96.4% probability of a 25 basis point rate cut at the September 16–17 meeting, and only a 3.6% probability of a larger 50 basis point cut.
Analysts at ING said in a research note: “We expect the dollar to remain under slight pressure before the meeting, and it could fall further if a 50 basis point cut appears closer than most traders currently expect.”
In addition to the Fed meeting, this week’s agenda includes the release of US retail sales data for August on Tuesday, and weekly jobless claims and July TIC data on Thursday.
ING added: “Last week’s surge in jobless claims briefly weighed on the dollar, and TIC data will be scrutinized for signs that foreign investors are not only hedging against US assets but also moving to sell them outright.”
French Political Risks Pressure the Euro
In Europe, the euro/dollar pair fell slightly to 1.1732, as the euro failed to benefit from the dollar’s weakness due to ongoing political uncertainty in France, especially after Fitch on Friday downgraded France’s sovereign credit rating by one notch to A+.
Traders are focusing domestically on whether new Prime Minister Sébastien Lecornu can unify the divided national parliament around the path of fiscal consolidation, which remains necessary despite his lack of popularity.
ING added: “We expect currency traders to monitor France’s debt profile closely, although our base case does not point to it turning into a new eurozone crisis.”
As for the pound/dollar pair (GBP/USD), it rose by 0.2% to 1.3582, supported by expectations ahead of the Bank of England’s meeting scheduled for Thursday. The bank cut rates last month for the fifth time in just over a year, but it is expected to keep policy unchanged this week as July inflation stood at 3.8%, the highest among G7 nations and nearly double the bank’s medium-term target.
However, data released late last week showed that UK growth stalled in July, after relatively strong performance in the first half of 2025.
The Yuan Falls after Weak Economic Data
In Asia, the dollar/yen pair fell by 0.1% to 147.48 in thin trading affected by Japan’s public holiday marking “Respect for the Aged Day.”
The dollar/yuan pair (USD/CNY) edged down to 7.1233, amid the continued release of weak economic data in China. August figures showed that industrial production, retail sales, and fixed asset investment all grew less than expected, while the unemployment rate unexpectedly rose to 5.3%.
These figures follow last week’s weak inflation data, which confirmed the persistence of disinflationary pressures in the world’s second-largest economy.
