The U.S. dollar declined on Tuesday, approaching seven-month lows amid expectations that the Federal Reserve will cut interest rates in September.

Dollar Weakens on Optimism Ahead of Fed Rate Cut

The U.S. dollar has fallen by more than 2% over the past month, in line with U.S. Treasury yields, amid growing optimism that the Federal Reserve will cut interest rates next month.

Fed Chairman Jerome Powell will speak at the Jackson Hole symposium this Friday, and traders are looking for more signals as to when and by how much the central bank will cut rates.

The Federal Reserve has held its benchmark overnight rate at the current 5.25%-5.50% range since July, and traders have been increasingly pricing in a 25 basis point rate cut in September, with a 24.5% probability of a 50 basis point move.

EUR/USD Hits Its Highest Level So Far This Year

Turning to Europe, EUR/USD traded flat at 1.1086, with dollar weakness driving the euro to its highest level so far this year.

The euro is up about 2% this month and on track for its best monthly performance since November.

The Eurozone’s consumer price index remained little changed in July, rising 2.6% year-over-year, which confirms that inflation pressures remain subdued.

GBP/USD was up 0.2% at 1.3009, reaching its highest level in a month due to weakness in the dollar.

Market traders are currently divided on the likelihood of the Bank of England lowering rates again in a month’s time, after a sharp rate hike campaign earlier this month.

The Yen Is Unchanged Ahead of Ueda’s Speech.

In Asia, USD/JPY fell to 146.35, close to the last session’s near two-week high, but well off the seven-month low of 141.67 reached at the beginning of August.

Market investors’ attention will be focused on Bank of Japan Governor Kazuo Ueda when he testifies before Parliament next Friday. Ueda is expected to speak on the bank’s decision last month to raise rates, and attention will focus on whether he maintains his recent hawkish tone.

USD/CNY traded flat at 7.1395, with slight support from the People’s Bank of China maintaining its benchmark lending rate as expected.

The August hold followed the People’s Bank of China unexpectedly cutting the benchmark lending rate in July in an attempt to stimulate economic development.