Dollar Stumbled on Tuesday as Traders Foresee a Less Aggressive US Fed

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As traders anticipated a perhaps less aggressive Federal Reserve, the U.S. dollar fell to lower levels in the North American trading session on Tuesday. Sterling gained from the elevated risk mood as Rishi Sunak got ready to become the next prime minister of Britain.

The Dollar Index, which measures the value of the dollar against a basket of six other currencies, dropped to 111.260 today, its lowest point since October 6.

The October S&P Global Composite PMI publication, which revealed that U.S. business activity had declined for a fourth consecutive month, indicated that the Fed’s relentless monetary tightening was having a significant effect. This led to a decline in the dollar on Monday.

This supported the notion that, following the anticipated 75 basis point rate hike in November, central bank policymakers were reconsidering the magnitude of upcoming rate increases.

According to sources familiar with the Fed’s thinking, The Wall Street Journal reported late last week that it will be less obvious how quickly rates will rise after the increase in November.

Pound Overpowers Dollar as Rishi Sunak Emerges as British PM

In other news, the GBP/USD exchange rate increased 0.1% to 1.1444 as Rishi Sunak, who defeated former prime ministers Penny Mordaunt and Boris Johnson to lead the ruling Conservative Party, became the country’s new leader.

With strong inflation-straining government finances and the Bank of England projecting a recession by the end of the year, Sunak has a lot on his plate.

He does, however, have some credibility in the markets due to the fact that he publicly rejected former Prime Minister Liz Truss’s plans for substantial unfunded tax cuts. The mix of tax increases and politically sensible spending constraints that he and his chancellor agree upon may determine how long this lasts.

Prior to the publication of the most recent indicator of business sentiment in the biggest and most significant economy in the Eurozone—Germany—the EUR/USD fell 0.2% to 0.9856.