The Dollar remained near a seven-month low on Tuesday as traders anticipated that the US central bank might begin cutting interest rates as early as next month, with traders preparing for statements from Federal Reserve Chair Jerome Powell on Friday. 

The Dollar's decline pushed the Euro to its highest level this year and allowed Sterling to approach a one-month peak, Reuters reports.

Additionally, MSCI's currency index in emerging markets reached a new record high.

This week’s attention will be on Powell's speech at Jackson Hole, which is likely to keep investors cautious about making significant moves before the event. The minutes from the Fed's last meeting, set to be released on Wednesday, will also be in focus. 

Investors largely anticipate that Powell will acknowledge the possibility of a rate cut and will analyse his comments for hints on whether the Fed might begin with a 25-basis point or a 50-basis point reduction in September, Reuters reports.

Charu Chanana, head of currency strategy at Saxo, noted that although a decline in the labour market had initially led markets to anticipate a larger rate cut in September, subsequent mixed data, including strong retail sales, has suggested that consumer resilience remains robust. 

“This could keep Powell wary of sending a strong signal on the magnitude of the first rate cut. Also, any clear risks of a larger rate cut could also signal a policy mistake from the Fed and higher recession risks.”

Furthermore, according to the CME FedWatch Tool, markets are now pricing in a 24.5% likelihood of a 50-basis point cut in September, a fall from 50% a week earlier. 

The probability of a 25-basis point reduction stands at 75.5%. Traders are anticipating a total of 93 basis points in rate cuts for the year.

A narrow majority of economists surveyed by Reuters predict that the Fed will implement a 25-basis point rate cut at each of its remaining three meetings this year.

Elsewhere, at the time of writing, the Euro stood at $1.10775 after reaching $1.108775 in early Tuesday trade, the highest since 28th December.

So far this month, the single currency has risen 2.4%, and it has been on track for its strongest monthly performance since November.

Whilst Sterling held steady at $1.2979 in Asian trading after reaching a one-month top of $1.2998 in the prior session.

Furthermore, the Dollar index, measuring the currency against six peers, last stood at 101.95, after hitting its lowest since 2nd January earlier on Tuesday at 101.82.