The U.S. dollar rose on Tuesday as Federal Reserve Chairman Jerome Powell downplayed the possibility of another deep interest rate cut, while the euro fell ahead of the release of the latest euro zone data.

Jerome Powell’s upbeat tone helps the dollar

Federal Reserve Chairman Jerome Powell indicated that the Fed will continue to cut interest rates, although he stressed that he will likely stick to interest rate cuts of a quarter percentage point and beyond.

“The 50 basis point cut in September means that market pricing is more structurally tilted toward dovish, perhaps also on the assumptions that the Fed would not want to default on easing in the event that a 50 basis point move is discounted by the date of the FOMC,” ING analysts, in a note, reported.

ll said the base case is for two 25 basis point moves by the end of the year, which is unusually specific guidance indicating its dissatisfaction with market dovish pricing,” ING added. “The balance of very short-term risks is likely skewed to the upside for the dollar.”

The monthly jobs-related report will be released on Friday, with the U.S. economy expected to have added about 144,000 jobs in the previous month.

Weaker-than-expected data could serve to reignite fears that a recession is likely, while surprisingly strong job growth could raise fears that the Fed will cut rates as deeply as expected.

Euro readies for inflation release

In Europe, the EUR/USD was down about 0.1% at 1.1120 ahead of the release of the latest Eurozone inflation-related figure later in the session amid hopes for more rate cuts by the European Central Bank as the year draws to a close.

Data released on Monday revealed that German inflation eased slightly above expectations to 1.8% in September, just below the forecast of 1.9%, following a 2.0% year-on-year increase in consumer prices in August.

Likewise, inflation is falling in Spain as well as in France and Italy, which seems to indicate that the risk to the eurozone’s annual growth estimate of 1.8% in September appears to be on the downside.

European Central Bank President Christine Lagarde told Parliament on Monday that “the most recent developments reinforce our confidence that inflation will return to target at the right time,” and this should be reflected in the policy decision on October 17.

Meanwhile, GBP/USD was down nearly 0.2% at 1.3340, retreating further from the previous week’s high of 1.3430, to a level not seen since February 2022.

Yen loses ground after Bank of Japan minutes

USD/JPY rose 0.4% to 144.16 after minutes from the Bank of Japan’s July meeting revealed that policymakers were divided on how fast the BOJ should continue to raise interest rates, highlighting uncertainty related to the timing of the next hike in borrowing costs.

At the July meeting, the BOJ surprisingly raised short-term interest rates to 0.25% by 7 votes to 2, taking a step toward phasing out a decade of massive stimulus.

USD/CNY rose to 7.0185, with yuan trading quiet as Chinese markets remain closed until Tuesday next week due to Golden Week celebrations.