The US dollar plummeted on Tuesday as investors raised their bets that the Federal Reserve will cut interest rates next month. The greenback has struggled to maintain momentum after reaching a bottom this past summer. Now that the Fed is likely to keep cutting heading into 2026, the buck is getting hammered.
The US Dollar Index (DXY), a measure of the greenback against a weighted basket of currencies like the British pound and Japanese yen, declined 0.44% to 99.70 at 15:30 GMT on Tuesday. The index is up 1% this month but is down about 8% this year.
A treasure trove of economic data released on Tuesday supported the case for the Federal Reserve lowering the benchmark federal funds rate, an influential policy rate that impacts business and consumer borrowing costs.
According to the CME FedWatch Tool, the futures market is penciling in a more than 70% chance of a quarter-point rate cut, which would be the third straight reduction. If accurate, the Fed would lower the new target range to between 3.5% and 3.75%.
Retail sales rose 0.2% in September, falling short of the market consensus.
The producer price index (PPI) for September also climbed 0.3%, in line with economists’ expectations. Core producer prices, which strip out the volatile energy and food components, ticked up at a smaller-than-expected pace of 0.1%.
The Conference Board’s Consumer Confidence Index declined to 88.7, from an upwardly revised 95.5, and came in below the market forecast of 93.4.
“Before Friday, we had a 40% chance of a Fed rate cut. Now we have an 80% chance. I’ve never seen that kind of volatility and expectations for a Fed cut in the span of a few days. The market is hyper-focused on this issue,” said Ron Albahary, LNW’s chief investment officer, according to CNBC. “I can’t predict the future, but it seems like the narrative is trending towards a Fed rate cut [on] Dec. 10, supportive of a Santa Claus rally.”
US Treasury yields were mostly in the red, with the benchmark ten-year down 3.2 basis points to 4.004%. The two-year yield erased 2.4 basis points to 3.465%, while the 30-year bond tumbled 2.3 basis points to 4.654%.