The US Dollar (USD) extended its gains against both the Australian Dollar (AUD) and the Euro (EUR) during early Asian trading on Tuesday, as market participants increased their bets on a potential interest rate hike by the US Federal Reserve (Fed) by September. According to the CME FedWatch tool, traders are now pricing in a nearly 60% probability of a Fed rate hike by that time, reflecting a shift toward a more hawkish outlook for US monetary policy [1][2].
The AUD/USD pair continued its decline for a third consecutive day, trading near 0.6870. The Australian Dollar faced additional downward pressure ahead of the Reserve Bank of Australia’s (RBA) Meeting Minutes and key Chinese PMI data, both scheduled for release later in the day. The Greenback also benefited from safe-haven flows amid ongoing geopolitical uncertainty related to US-Iran relations, with conflicting reports about potential talks between the two nations [1].
Meanwhile, the EUR/USD pair softened to around 1.1415 as traders reduced their expectations for further rate hikes from the European Central Bank (ECB). ECB President Christine Lagarde noted that Europe is becoming less vulnerable to external shocks, but emphasized that a peace deal in the region remains uncertain and policymakers must still decide on the need for further monetary tightening. Market expectations for additional ECB rate increases have diminished as energy prices retreat, with Oxford Economics and Capital Economics forecasting no further hikes, though investors are still pricing in the possibility of one more quarter-point move to bring the deposit rate to 2.50% [2].
Both articles highlight the importance of upcoming US labor market data, including the Nonfarm Payrolls report, which is expected to show June job growth of 114,000 and an unchanged unemployment rate of 4.3%. These data releases are seen as key indicators that could influence the Fed’s policy trajectory and, consequently, the direction of the US Dollar [1][2].
CONCLUSION
Rising expectations for a US Federal Reserve rate hike have strengthened the US Dollar, putting pressure on both the Australian Dollar and the Euro. Market participants are closely watching upcoming central bank communications and US labor market data for further direction. The current sentiment favors the Greenback, with monetary policy divergence driving currency movements.