“Dollar” continues to weaken, nearing 4-year low after market believes Fed is about to cut interest rates

“Dollar” continues to weaken, nearing 4-year lows against euro, pound and Swiss franc after market increases expectations for Fed to cut interest rates sooner amid hopes for US-China trade deal

On June 30, 2568, at 08.59:4 AM, Reuters reported that the US dollar weakened to near its lowest level in nearly four years against the euro on Monday, as positive market sentiment regarding a US trade deal fueled investor expectations that the Federal Reserve (Fed) would cut interest rates sooner than anticipated.

The dollar also fell near a four-year low against the pound and fell to a more than decade low against the Swiss franc after the United States and China made progress in reaching a deal on import tariffs, although President Donald Trump destabilised market sentiment by abruptly ending trade talks with Canada.

Investors interpreted Federal Reserve Chair Jerome Powell's testimony to Congress last week as dovish after he said the Fed was likely to cut interest rates if inflation did not spike this summer due to tariffs.

The chances of the Fed cutting rates by at least 0.25 basis points by September have risen to 92.4%, up from around 70% the previous week, according to CME Group's FedWatch Tool. The Fed's policy-setting committee is set to meet again next month, but will not meet in August.

"The current market price reflects a perception that a September interest rate cut is inevitable," said Chris Weston, head of research at Pepperstone.

He added, “Friday’s U.S. monthly employment report is a major market risk event this week, and the dollar’s ​​outlook appears particularly volatile as the Fed is likely to accelerate interest rate cuts if the figures are weaker than expected. This means the dollar is more likely to weaken sharply if the employment figures are bad, rather than recover if they are better than expected.”

Another factor that has put pressure on the dollar is that Trump has continued to attack Powell. On Friday, Trump said he wanted Powell to resign before his term ends in May, and also said he wanted to cut the policy interest rate to 1% from the current level of 4.25-4.5%, and reiterated his plan to replace the Fed chair with a more dovish approach.

Investors are also eyeing Trump's massive tax cut and spending bill pending in the Senate, which the Congressional Budget Office (CBO) estimates could add $3.3 trillion to the national debt over the next decade.

The dollar index, which measures the greenback against a basket of six major currencies, including the euro, pound and Swiss franc, rose slightly by 6% to 0.1, but remained near a more than three-year low of 97.276 hit late last week. The euro was down slightly at $3, off Friday's highest since September 96.933 of $1.1716. The pound was steady at $2021, near a more than two-year peak of $1.1754 hit on Thursday.

The dollar was steady at 0.7988 Swiss francs after falling to 0.7955 francs on Friday, its lowest level since January 2015, when the Swiss central bank abruptly abandoned the franc's peg to the euro. The dollar was trading in a tight range at 144.58 yen.

Meanwhile, U.S. Treasury Secretary Scott Bescent revealed on Friday that the U.S. and China have reached an agreement on the export of rare earth minerals and magnets from China to the U.S., which is a modification of the original agreement reached in Geneva in May.

He also said trade deals with other countries were likely to be reached by Labor Day in the US, Sept. 1, reflecting Trump's potential to extend the July 9 deadline to reach an agreement or face harsh retaliatory tariffs.

The Australian dollar, considered a risk-on currency, edged up slightly to $0.6537, near a seven-and-a-half-month high of $7 hit Thursday.

Reference: reuters.com

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