The US dollar weakened on Monday, continuing a recent downward trend as investors grew more confident in the prospect of trade agreements and a possible shift in monetary policy by the Federal Reserve, Reuters reports.
Market sentiment turned increasingly dovish after last week’s congressional testimony by Fed Chair Jerome Powell, in which he suggested that rate cuts could be on the table if inflation remains stable. As a result, traders now see a 92.4% likelihood that the Fed will lower interest rates by its September meeting, according to CME Group’s FedWatch Tool — up from roughly 83% the previous week.
At the same time, progress in US trade negotiations helped drive optimism in the foreign exchange markets. Notably, Washington and Beijing have resolved issues around the shipment of rare earth minerals, and Canada dropped its digital services tax in an effort to restart stalled discussions with the US.
These developments weighed on the dollar, which fell to its lowest levels in years against several major currencies. The euro edged up 0.1% to $1.1732, nearing a peak last seen in September 2021. Sterling also climbed 0.1% to $1.3732, while the Swiss franc traded at 0.7978 per dollar, close to Friday’s multi-year high.
The dollar’s decline was even sharper against some Asian currencies. It slipped 0.5% to 143.90 yen and dropped 1.1% to 1,349.40 Korean won. The offshore Chinese yuan also strengthened, gaining 0.2% to trade at 7.1596 per dollar.
Political developments added further pressure to the dollar. Former President Donald Trump publicly criticized Fed Chair Powell again on Friday, saying he would prefer a new central bank leader and advocating for a steep rate cut to 1%. Trump’s comments, along with his proposed tax and spending bill — projected to add $3.3 trillion to the national debt over the next decade — have added uncertainty to the US economic outlook.
Analysts at Commonwealth Bank of Australia noted in a weekly report that the dollar’s movements are likely to be closely tied to trade developments this week. While they expressed skepticism that multiple trade deals could be finalized by the US Labor Day deadline, they acknowledged that even limited progress would impact currency markets.
Elsewhere, commodity-linked and risk-sensitive currencies posted gains. The Australian dollar rose 0.3% to $0.6550, while the New Zealand dollar advanced 0.5% to $0.6083. The Canadian dollar edged up 0.1% to C$1.3661 against the greenback.
