The dollar index slipped to 96.8 on Tuesday, extending losses of more than 1% over the previous two sessions, as softer US data bolstered expectations for Federal Reserve rate cuts. A weaker-than-anticipated retail sales report signaled that consumer spending stalled in December, reinforcing perceptions of a slowing economy and strengthening the case for monetary easing.
Money markets are now pricing in a higher likelihood of three Fed rate cuts in 2026, up from expectations of two cuts just a week earlier. Investors are closely watching upcoming US labor market and inflation releases for further clues on the economic outlook and the future path of monetary policy.
The dollar also came under pressure amid concerns over foreign demand for US assets, following reports that Chinese regulators have urged financial institutions to limit their holdings of US Treasuries in order to reduce concentration risk and hedge against uncertainty surrounding US economic policy.
