Dollar Struggles as Fed Rate Cut Bets Gain Traction

The U.S. dollar struggled to advance against major currencies on Thursday amid growing bets that the Federal Reserve could reduce interest rates next month. Traders reacted to comments from New York Fed chief John Williams, who signaled a rate cut was possible, and to President Trump’s campaign to replace Fed Governor Lisa Cook with a loyalist, increasing uncertainty over U.S. monetary policy.

Currency Movements

• Dollar Index: steady at 98.145, after two days of declines.
• Euro: little changed at $1.1640.
• Sterling: slight gain to $1.3505.
• Swiss Franc: slipped 0.14% to 0.8015.
• Japanese Yen: down 0.19% to 147.11.
• Chinese Yuan: edged down 0.03% to 7.1495.
• Australian Dollar: steady at $0.6507.
• Bitcoin: up 0.4% to $112,913.

Factors Pressuring the Dollar

1. Fed Rate Cut Expectations: Traders assign ~89% probability to a 25-basis-point cut in September, with 55 basis points of easing priced in by year-end.
2. Treasury Yields: Two-year yields fell to their lowest since May 1, reflecting policy expectations.
3. Trump’s Fed Influence: Attempts to place dovish candidates on the Fed could accelerate cuts, with the possibility of 50 bp jumbo cuts at each meeting.
4. Global Risks: Japan delayed its $550 billion investment pledge announcement to the U.S. due to ongoing administrative discussions.

Upcoming Data:

• PCE Price Index (Friday) – Fed’s preferred inflation gauge.
• Monthly Payrolls Report (next week) – key for labor market insights ahead of the September 16-17 Fed meeting.