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Investing.com -- The dollar is approaching this week’s Federal Open Market Committee (FOMC) meeting largely on the back foot, driven lower primarily by a string of soft U.S. economic data. The currency has depreciated approximately 3.8% over the past month, reaching lows not seen since March 2022 when the Federal Reserve began its hiking cycle.
Downside misses in May’s Consumer Price Index (CPI) and Producer Price Index (PPI) have alleviated some immediate inflationary concerns related to tariffs, though long-term impacts remain uncertain. The employment outlook remains generally stable with a historically low 4.2% unemployment rate, but downward non-farm payroll revisions and rising unemployment claims have drawn market attention.
Federal Reserve expectations have remained relatively stable over the past month, with markets pricing approximately 50 basis points of cuts through 2025 and 100 basis points total through 2026. Despite this stability in rate expectations, the dollar has continued to weaken against major currencies.
The foreign exchange market appears to be looking past any resilience in U.S. data, instead emphasizing potential downside risks. This added risk premium largely stems from longer-term concerns over excess U.S. dollar currency exposure among large non-U.S. real money investors.
A key question for the dollar at Wednesday’s FOMC meeting will be how the committee and Chair Jerome Powell assess these recent economic developments in their balance of risk assessment, potentially providing direction for the currency in coming weeks.
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