USD index drops to weekly lows as Fed rate cut expectations intensify

The US dollar index fell 0.6% to 101.50, marking its lowest level in a week as weak economic data reinforced expectations for aggressive Federal Reserve rate cuts. Manufacturing PMI contracted to 47.8, while job openings dropped to 8.1 million, significantly below the forecasted 8.5 million. Markets are now pricing in a 65% probability of a 50 basis point cut in September, up from 40% last week. EUR/USD benefited from dollar weakness, rising 0.4% to 1.0875, while GBP/USD advanced 0.5% to 1.2850. The dollar's broad-based decline also lifted commodity currencies, with AUD/USD gaining 0.7% to 0.6680. Technical indicators suggest the dollar index could test the 101.00 support level if economic data continues to disappoint. Traders should monitor Friday's Non-Farm Payrolls report, which could cement rate cut expectations and drive further dollar weakness.