Dollar Weakens Near Multi-Year Lows Amid Fed Cut Bets and Trade Optimism

The U.S. dollar hovered near its lowest levels in nearly four years against the euro and sterling on Monday, pressured by rising expectations of Federal Reserve rate cuts and optimism over global trade deals. Market sentiment turned increasingly dovish following Fed Chair Jerome Powell’s recent testimony, in which he signaled potential rate reductions if inflation remains subdued this summer. The CME FedWatch Tool now shows a 92.4% chance of a rate cut by September, up sharply from 70% last week.

Adding to the pressure, President Donald Trump continued his criticism of Powell, suggesting the Fed Chair resign and pushing for a benchmark rate cut to 1% from the current 4.25–4.5% range. Trump also reiterated plans to appoint a more dovish Fed leader.

While the dollar index edged slightly higher to 97.276, it remained close to a three-year low of 96.933. The euro held at $1.1716, just below its Friday high of $1.1754—the strongest since September 2021. Sterling traded at $1.3709, near levels not seen since October 2021, while the greenback was steady at 0.7988 Swiss franc after dipping to a decade low of 0.7955. Against the yen, it held at 144.58.

Markets also reacted to news that the U.S. and China resolved rare earth shipment issues, boosting confidence in trade progress. Treasury Secretary Scott Bessent hinted that several trade deals could be finalized by Labor Day. However, analysts at Commonwealth Bank of Australia expressed doubts over such swift progress, expecting uneven impacts on the dollar depending on currency pairs.

The Australian dollar inched up to $0.6537, nearing a recent multi-month high, as risk sentiment improved. Investors now await Friday’s U.S. payrolls report, a key factor in shaping the Fed’s next move.