Dollar Faces Mounting Pressure as Manufacturing Slump Intensifies Rate Cut Expectations

Weaker Dollar Signals Shift Toward Policy Easing

The greenback deteriorated further on Tuesday as fresh economic data sparked renewed speculation about imminent interest rate reductions. The U.S. Dollar Index, benchmarked against six major currencies, fell to 99.408 in Asian trading—marking its lowest point in two weeks and extending losses to a seventh consecutive session. This deterioration reflects mounting market conviction that the Federal Reserve will lower borrowing costs at its December 10 policy decision.

Manufacturing Contraction Deepens Rate Cut Case

Persistent weakness in U.S. industrial activity has become the central driver of monetary policy expectations. The Institute for Supply Management’s manufacturing PMI retreated to 48.2 in November from 48.7 previously, signaling the sector’s ninth straight month in contraction territory. Deteriorating new orders, employment declines, and elevated input costs stemming from ongoing trade tariffs paint a picture of slowing economic momentum, according to analysis from ANZ’s G3 economics team in London. This weakness has prompted economists to project not only an imminent rate reduction but an additional 50 basis points of cuts throughout 2026.

Markets Price In High-Probability Rate Reduction

CME Group’s FedWatch tool now shows an 88% implied probability of a 25-basis-point rate cut during the Fed’s December 10 meeting—a substantial jump from the 63% probability gauged one month earlier. This dramatic repricing demonstrates how swiftly investor expectations have shifted in response to deteriorating growth signals. Meanwhile, the 10-year Treasury yield climbed to 4.086% following global bond market volatility on Monday.

Divergent Paths in Global Currency Markets

Across foreign exchange markets, reaction to divergent central bank signals proved uneven. The dollar remained flat at 155.51 yen as Bank of Japan Governor Kazuo Ueda signaled the institution would carefully assess the “benefits and drawbacks” of a rate increase at the next meeting—a comment that propelled Japanese two-year yields above 1% for the first time since 2008. The euro maintained its position near $1.1610 as European policymakers continued diplomatic engagement on Ukraine. Sterling strengthened to $1.3216, hovering near monthly highs following political developments at the UK’s fiscal authority. The Australian dollar held steady around $0.6544, while New Zealand’s currency traded at approximately $0.5727, both showing relative stability as the Asian session opened.