U.S. Dollar Drops Amid Rate Cut Hopes

The U.S. dollar moved down against its major counterparts in the New York session on Wednesday, amid increasing expectations of a potential rate cut in September.

In an interview with the Wall Street Journal, New York Fed President John Williams indicated that recent inflation readings are getting the policy makers closer to a disinflationary trend that they are looking for.

"I feel like the stance of policy right now is working well," he added.

On Monday, Fed Chair Jerome Powell said the three inflation readings over the second quarter of this year provided policymakers greater confidence that the pace of price increases is returning to the central bank's 2 percent target.

Investors are fully pricing in a 25 basis point cut in September.

In economic news, the Commerce Department released a report showing a significant rebound by new residential construction in the U.S. in the month of June.

The report said housing starts shot up by 3.0 percent to an annual rate of 1.353 million in June after plunging by 4.6 percent to a revised rate of 1.314 million in May.

Economists had expected housing starts to jump by 2.6 percent to a rate of 1.310 million from the 1.277 million originally reported for the previous month.

The greenback fell to multi-week lows of 0.8835 against the franc and 156.09 against the yen, off its early highs of 0.8944 and 158.62, respectively. The greenback is seen finding support around 0.87 against the franc and 147.00 against the yen.

The greenback declined more than a 4-month low of 1.0948 against the euro and a 1-year low of 1.3044 against the pound, from its early highs of 1.0895 and 1.2963, respectively. The greenback is likely to challenge support around 1.10 against the euro and 1.31 against the pound.

In contrast, the greenback rose to 0.6720 against the aussie and 1.3696 against the loonie, from an early low of 0.6754 and a 2-day low of 1.3656, respectively. The currency is likely to locate resistance around 0.64 against the aussie and 1.38 against the loonie.

The greenback rebounded to 0.6068 against the kiwi, from an early 2-day low of 0.6097. This may be compared to a previous more than 2-month high of 0.6033. If the currency rises further, it is likely to test resistance around the 0.58 region.