The dollar is in trouble. On Friday, it hovered near its lowest point in 3.5 years against the euro and the pound. Traders are betting hard on U.S. interest rate cuts, and the market’s shifting fast.
This drop isn’t random. It’s political. It’s strategic. And it might just be the beginning of something bigger.
Powell Under Fire, Trump Circles the Fed
All eyes are on the Fed—and on Jerome Powell, whose term ends in May. This week, Powell sounded softer than usual in his speech to Congress. Some called it “dovish.” Traders took note. Now, they expect 64 basis points of rate cuts this year. Just a week ago, that number was only 46.
But here’s the twist: President Trump is reportedly considering replacing Powell early. His goal? To push for deeper cuts and more control over the Fed’s direction. If a replacement is announced soon, Powell could become what experts call a “lame duck.” That would weaken the Fed’s independence—and possibly the dollar, too.
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Euro and Pound Gain as Dollar Dips
As the dollar weakens, other currencies are taking advantage. The euro rose to $1.17208—just below its highest level since 2021. The British pound also climbed, touching its strongest point since late 2021.
This trend isn’t just about U.S. politics. France’s latest inflation data came in hotter than expected, giving the euro another small boost.
Meanwhile, the dollar index, which tracks the greenback against six major currencies, has dropped more than 10% this year. It’s now at 97.159, a level last seen in March 2022.
Trade Deals and Tariff Deadlines Loom
There’s more heat coming. Trump’s “reciprocal tariffs” are set for a July 9 deadline. Countries are scrambling to make trade deals before that date. Germany’s Chancellor Friedrich Merz wants a “quick and simple” deal with the U.S. Meanwhile, the White House confirmed a rare earths shipping agreement with China.
These deals matter. If they stall or go sideways, it could shake global markets—and weaken the dollar further.
What to Watch Next
Markets now wait for Friday’s core PCE price index release—one of the Fed’s preferred inflation gauges. A low print could speed up rate cut expectations even more.
Also in focus: how far Trump is willing to go in reshaping the Fed. If he replaces Powell with a more “compliant” figure, expect turbulence.
The dollar isn’t just falling—it’s flashing a warning sign. With rate cuts likely and Trump eyeing the Fed, the U.S. currency could be in for a long, bumpy ride.
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