The euro fell in European trading on Tuesday against a basket of global currencies, continuing to move in the negative zone for the third consecutive day against the US dollar, as investors focused on buying the American currency as the best alternative investment, while maintaining caution toward political developments in Japan and France.

With inflationary pressures once again mounting on European Central Bank policymakers, the likelihood of further interest rate cuts this year has declined. To reassess these expectations, investors are awaiting additional economic data and remarks from ECB officials.

Price Overview

The EUR/USD exchange rate fell by about 0.1% to $1.1632, down from an opening level of $1.1641, after recording a high of $1.1655.

The euro ended Mondays session down 0.1% against the dollar, marking its second consecutive daily loss, as corrective activity and profit-taking continued from its two-week high at $1.1728.

US Dollar

The US Dollar Index rose by more than 0.1% on Tuesday, extending gains for the third consecutive session and reflecting continued strength of the American currency against a basket of major and minor currencies.

This rise came amid ongoing demand for the dollar as the preferred alternative investment, with investors remaining cautious about political developments in Japan ahead of a crucial parliamentary vote to select a new prime minister in the worlds fourth-largest economy.

In addition, the absence of any clear catalyst to end the US government shutdown in the coming weeks has increased the likelihood that it could extend into November, potentially triggering further risk aversion.

Political Developments in France

Although Prime Minister Sbastien Lecornus decision to suspend the 2023 pension reform until after the 2027 presidential elections brought some temporary calm to European markets, it did not address the underlying political crisis or reduce uncertainty surrounding future fiscal policy in the eurozones second-largest economy.

European Interest Rates

Market pricing currently shows less than a 10% probability of a 25-basis-point rate cut by the European Central Bank in October.

Traders have scaled back expectations of further monetary easing by the ECB, indicating that the current rate-cutting cycle may have ended for this year.

To reassess these probabilities, investors are awaiting a range of economic data releases in Europe, along with upcoming remarks from ECB officials.