The U.S. dollar wavered on Friday, hovering near its lowest levels in three and a half years against both the euro and the British pound, as traders ramped up bets on more aggressive Federal Reserve rate cuts. Attention also turned to upcoming trade agreements, with a July deadline looming for President Donald Trump’s proposed tariff measures.
With geopolitical tensions from the Israel-Iran conflict receding following a stable ceasefire, market focus has shifted firmly to U.S. monetary policy.
Speculation that Trump may announce a dovish successor to Federal Reserve Chair Jerome Powell earlier than usual — in a move perceived as undermining Powell — has heightened expectations for interest rate cuts. Powell’s term officially ends in May 2026.
Powell’s remarks during his testimony to Congress this week were also seen as slightly dovish, reinforcing bets that the central bank may ease policy further. Traders are now pricing in 64 basis points of rate cuts by year-end, up from 46 basis points forecast earlier in the week.
“The earlier Trump names a successor, the more Powell is likely to be seen as a lame duck,” said Carol Kong, currency strategist at the Commonwealth Bank of Australia.
While no decision has been finalized, and no announcement is imminent, Trump continues to publicly criticize Powell and push for substantial rate cuts. This has raised concerns among investors about the Federal Reserve’s independence and long-term credibility.
The euro retreated slightly to $1.16885 after touching $1.1745 on Thursday — its highest level since September 2021. Sterling last traded at $1.3725, just below Thursday’s peak of $1.37701, a high not seen since October 2021.
The U.S. dollar index, which tracks the currency against a basket of six peers, hovered near 97.398 — its lowest level since March 2022 — and was on pace to fall 2% in June, marking its sixth consecutive monthly decline. The index has shed over 10% so far in 2025, driven largely by economic uncertainty surrounding Trump’s tariffs, which have weighed on growth expectations.
The yen edged down to 144.56 per dollar, while the Swiss franc held firm at 0.8013 per dollar, near its strongest level in more than a decade.
Trade Deadline in Focus
Investors are also watching for signs of progress on new trade agreements as the July 9 deadline for Trump’s “reciprocal” tariffs approaches. Several nations are racing to finalize deals and avoid new levies.
German Chancellor Friedrich Merz urged the EU to pursue a “quick and simple” trade deal with the U.S., warning against lengthy negotiations.
Meanwhile, a White House official said the U.S. had reached an agreement with China to streamline rare earth shipments, a key component in electronics and defense manufacturing.
The weak dollar has benefited risk-sensitive currencies. The Australian dollar reached a seven-month high of $0.6564 on Thursday and traded at $0.65435 on Friday, heading for a 1.6% weekly gain — its best performance since early April.
Emerging market currencies also saw gains. Taiwan’s dollar strengthened to its highest level since April 2022, buoyed by broad dollar selling.
“Everyone’s offloading U.S. dollars — foreign investors, exporters, you name it,” said a Taiwan-based trader. “Some major clients even dumped their dollar holdings earlier this morning.”
PCE Inflation Report Ahead
The next major event on the radar is Friday’s release of the U.S. core Personal Consumption Expenditures (PCE) price index, the Fed’s preferred measure of inflation.
“A weaker-than-expected reading could reinforce recent dovish signals from the Fed,” said Christopher Wong, currency strategist at OCBC. “That would likely add to the broad-based weakness in the U.S. dollar.”
