Investing.com – The U.S. dollar slipped lower Tuesday, falling close to seven-month lows amid growing conviction that the Federal Reserve will cut interest rates in September. 

At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.3% lower to 101.667, trading near its lowest level since early January. 

Dollar weakens on Fed rate cut optimism

The greenback has fallen over 2% over the course of the last month, in tandem with U.S. Treasury yields, amid growing optimism that the U.S. central bank will cut interest rates in September. 

Fed Chair Jerome Powell is set to speak at the on Friday, and traders are looking for more clues as to when and by how much the central bank will cut rates.

“We think Powell’s take will be reassuring and consistent with a soft baseline of a string of 25s, but he will convey the Fed is open to 50s and the bar for this is not very high,” said Evercore ISI.

However, “we do not expect a hard steer as to whether the first move will be a 25bp or 50bp cut,” Evercore ISI added. Instead, Powell is expected to suggest that the decision will hinge on the upcoming labor data.

The Fed has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range since last July, and traders have fully priced in a 25-basis-point rate cut from the Fed in September, with a 24.5% chance of a 50 bp move. 

EUR/USD at highest this year

In Europe, traded largely unchanged at 1.1086, with weakness in the dollar lifting the euro to its highest this year.

The single currency is up around 2% this month, and is on course for its strongest monthly performance since November.

The eurozone was confirmed at flat on the month in July, an annual gain of 2.6%, confirming that inflationary pressures remain subdued. 

traded 0.2% higher at 1.3009, climbing to a one-month high with sterling benefiting from dollar weakness.

Traders are split on the chances of another rate reduction by the a month from now, after it kicked off a rate-cutting campaign earlier this month in a close-call decision.

Yen stable ahead of Ueda speech

In Asia, fell 0.1% to 146.35, close to the previous session’s near two-week high, but a fair distance away from the seven-month low of 141.67 it touched at the start of August.

Investor attention will be on Bank of Japan Governor Kazuo Ueda when he appears in parliament on Friday. Ueda is expected to discuss the BOJ’s decision last month to raise rates and the focus will be on whether he sticks to his recent hawkish tone.

traded flat at 7.1395, taking little support from the People’s Bank of China keeping its benchmark on hold as expected.

August’s hold came after the PBOC unexpectedly cut the LPR in July, as it moved to further boost economic growth.