The US dollar continued to see more weakness as expectations of a softer monetary policy in the US remain anchored. The Federal Reserve could shift its stance as the US economy continues to slow down and could pause its interest rate hikes in the following months and eventually move to decrease interest rates to accommodate a potentially struggling economy later this year.

Such a change in direction could further tilt traders’ interest toward the euro as the interest rate differential shrinks between US and European treasury yields. In this regard, the European currency has been gaining ground over the dollar for some time while the ECB is expected to keep raising interest rates for longer.

In the meantime, the US economy could be seeing more issues in the job market as well as manufacturing as interest rate hikes’ effects become more and more visible. The tightening credit conditions that followed the banking sector scare could also affect small businesses to a large extent, further slowing the economy and pushing the dollar down.

Early next month, traders could monitor the next Federal Reserve meeting for an expected interest rate hike and comments from the central bank’s president. The rate hike could be the last as the banking sector crisis of confidence and the aggressive Fed policy contributed to tightening monetary conditions. As a result, Jerome Powell’s comment could cause strong volatility as traders try to determine whether the tightening cycle is effectively coming to an end.

Over a longer period of time, if European economies deteriorate significantly, investors could move back to the dollar in search of safety and potentially toward gold as well. Stronger risk aversion could help prop up the dollar even if interest rates decline.