The dollar weakened on Monday against the yen and fell to its lowest level in nearly four years versus the euro, buoyed by optimism about U.S. trade agreements and traders’ expectations of swift Federal Reserve rate cuts.
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It also approached four‑year troughs against the British pound and hit ten‑year lows versus the Swiss franc after the White House moved closer to a deal with China, while Canada scrapped its digital services tax to resume stalled talks.
Investors interpreted Federal Reserve Chair Jerome Powell’s testimony to Congress last week as dovish on policy, since he signaled the possibility of rate cuts if inflation does not rise this summer due to tariffs. The CME Group’s FedWatch Tool shows a 91.5% probability of a 25‑basis‑point cut by September, up from about 83% a week ago.
A series of U.S. economic releases is due this week, including the key jobs report, which could sway market expectations of the Fed’s next move. Francisco Pesoli, a currency analyst at ING, said: “Overall, risk is tilted toward dollar weakness, but our forecasts of mild job growth and rising inflation in coming months suggest the market may have overdone the dovish pricing.” He added that any disappointing data could spark another round of dollar selling.
President Trump’s attacks on Powell have also weighed on the dollar; on Friday, Trump said he would be “thrilled” if Powell resigned before his term ends in May and reiterated his desire to cut the benchmark rate to 1% from the current 4.25–4.5%, hinting at replacing Powell with someone more dovish.
Investors are also watching a massive tax‑cut and spending package now before the Senate, which the Congressional Budget Office estimates could add $3.3 trillion to U.S. debt over a decade.
The U.S. dollar index, which measures the currency against six major peers, is on track for its biggest six‑month drop since the early 1970s, when major currencies began to float freely.
In fixed‑income markets, Wall Street gained momentum on Friday, driving the S&P 500 and Nasdaq to record closes with roughly 0.5% gains each, while the Dow rose about 1%.
The index stood at 97.183, near a three‑and‑a‑half‑year low logged last week. The dollar fell 0.4% to 144.11 yen, while the euro was little changed at $1.1723, close to its highest since September 2021. The pound slipped 0.1% to $1.3701, near its strongest since October 2021.
Dollar strength against the Swiss franc eased, with the franc trading at 0.7978 per dollar, after Friday’s drop to 0.7955—a level not seen since January 2015 when the Swiss National Bank abandoned its euro peg.
U.S. Treasury Secretary Scott Bair on Friday said Washington and Beijing resolved issues over rare‑earth metal and magnet shipments from China under a Geneva agreement reached in May. He added that trade deals with other nations could be finalized by the U.S. Labor Day holiday on September 1, indicating some flexibility around a July 9 deadline or the imposition of stiff “reciprocal” tariffs.
Analysts at Commonwealth Bank of Australia wrote in their weekly FX strategy note: “We expect the dollar to hinge on U.S. trade developments this week. We remain skeptical that many deals can be concluded so quickly.”
The Chinese yuan jumped 0.1% to 7.163 per dollar on news of trade deals, while the Canadian dollar gave up some early gains to trade around its previous levels.
— Reuters
