The dollar index steadied at 97.4 on Tuesday, lingering near its weakest level in almost seven weeks as mounting concerns over a cooling labor market strengthened expectations for Federal Reserve rate cuts. Investors awaited US benchmark revisions for employment covering April 2024 to March 2025, with economists projecting downward adjustments of up to 800,000 jobs, a signal the Fed may be lagging in its mandate to maximize employment. Attention also turned to two key inflation reports due this week that could shape the next policy decision, with the August producer price index out Wednesday and the consumer price index on Thursday. Markets currently see an 89% chance of a 25 basis point cut at next week’s meeting, while some participants are positioning for a larger 50 basis point move.

The Brazilian real weakened toward 5.43 per US dollar, not far from the one-year high of 5.39 seen on August 12th as investors balanced the currency’s attractive carry trade appeal with rising political. Domestically, focus is on the resumed trial of former President Jair Bolsonaro, with a verdict on his role in the attempted coup expected this week, adding headline risk ahead of election-year budget debates. At the same time, the central bank’s Focus report showed only minor adjustments to exchange-rate forecasts, with end-2025 projections steady near 5.55, limiting expectations of sustained appreciation. Externally, markets are awaiting US inflation data after weak payrolls increased speculation of Fed easing.

The dollar index fell to around 97.5 on Monday, its lowest level since late July, as traders increasingly priced in a Federal Reserve rate cut next week following a weak labor market report that signaled further cooling. Attention now turns to inflation data, with the upcoming CPI and PPI releases expected to provide fresh insight into price pressures. The BLS’s preliminary benchmark revision to employment levels for the 12 months through March will also be closely watched. Markets have nearly fully priced in a 25bps Fed cut this month. In contrast, the ECB is expected to keep rates unchanged at its policy meeting on Thursday, with bets on further cuts later this year continuing to fade. The greenback weakened the most against the Swiss franc, the Australian dollar, and the euro.