The US dollar weakened on Wednesday, adding to losses from the previous session, with the euro benefiting despite signs of economic weakness in the euro zone.

At 04:00 ET (09:00 GMT), the dollar index, which measures the greenback against a basket of six other currencies, was trading down 0.1% at 100.080, after falling more than 0.5% in the previous session, its biggest one-day percentage decline in a month.

The dollar continues to fall

The US dollar struggled for friends after the US central bank, the Federal Reserve, began its interest rate cutting cycle with a massive 50 basis point cut earlier this month.

Data on Tuesday showed consumer confidence fell unexpectedly in September, raising concerns about further growth in the world's largest economy, especially as the labor market shows signs of contraction.

“In a surprise move yesterday, US consumer confidence was much weaker than expected,” analysts at ING said in a note. “The market is very sensitive to this because the US consumer has been very resilient for a long time.”

Markets are now pricing in a 59.5% chance of a 50 basis point rate cut at the Fed’s next policy meeting, up from just 37% a week ago, according to the CME FedWatch tool.

Euro nears 13-month high

In Europe, the euro EUR/USD rose 0.1% to 1.1188, hovering near a 13-month high hit last month as the euro benefited from a weaker dollar despite data pointing to economic weakness in the euro zone.

There is not much on the European calendar today, so a range-bound EUR/USD trade looks likely. But the fact that EUR/USD is holding above 1.1100 is encouraging for modest buyers like us.

GBP/USD fell 0.1% to 1.3394, retreating from levels not seen since March 2022.

Sterling received support as the Bank of England is widely seen as less likely to be aggressive in interest rate cuts this year than the Federal Reserve.

The Bank of England's Megan Green is due to speak later in the session, and her comments will be studied for further clues on the timing of monetary easing from the British central bank.

USD/SEK rose 0.1% to 10.1041, ahead of the latest monetary policy meeting by the Swedish Riksbank.

The central bank is widely expected to cut interest rates by 25 basis points later today, but Riksbank Governor Erik Theden has not ruled out a half-basis point cut.

Yuan near record levels

The yuan USD/CNY fell 0.1% to 7.0238, approaching its lowest since May 2023 after Beijing announced a slew of stimulus measures on Tuesday, including cutting banks’ reserve requirements, as well as lowering mortgage rates.

USD/JPY rose 0.4% to 143.81, while AUD/USD fell 0.2% to 0.6878, just below a 19-month high after a sharp rise in the previous session.

Data released on Wednesday for the consumer price index showed inflation fell to a three-year low in August, while the decline in core inflation was less pronounced.

The Reserve Bank of Australia kept interest rates steady on Tuesday, saying that while inflation was expected to moderate in the near term, it expected price pressures to reach the target range sustainably by 2026.