Dollar Under Pressure: Fed Moves Spark Sharp Decline in the U.S. Currency

The US dollar slipped to its lowest level in nearly six weeks on Thursday, following the Federal Reserve’s widely anticipated decision to cut interest rates by 25 basis points. Markets had already priced in more than a 95% chance of the move, yet its ripple effects were clearly felt across currency trading.

Despite a brief uptick of around 0.6% in the US Dollar Index — which measures the dollar’s performance against a basket of major currencies — the overall tone remained bearish. The rate cut, announced on Wednesday, pushed the Fed’s target range lower and signaled a more accommodative stance designed to support economic stability.

Adding to this, the Federal Reserve unveiled a plan to inject additional liquidity into the financial system by purchasing $40 billion in short-term US Treasury securities each month. This step, akin to quantitative easing in its impact, reinforced expectations of a prolonged period of relaxed monetary policy.

The dollar’s losses deepened after fresh labor market data painted a softer economic picture. Weekly jobless claims surged to 236,000, their highest level in three months and well above expectations of 220,000. The increase highlights emerging weakness in the labor market — a key factor that typically supports easier monetary conditions and weighs on the currency.

However, the dollar did receive a modest boost from a rare piece of positive economic news. The US trade deficit unexpectedly narrowed in September to $52.8 billion, its lowest level in more than five years, defying forecasts that had pointed to an expansion to $63.1 billion. While this improvement offered the currency some relief, it was not enough to offset broader selling pressure.

Further downward momentum came amid speculation surrounding a potential shift in the Federal Reserve’s leadership. Reports suggest that President Donald Trump is considering appointing a new Fed chair who favors a more dovish policy stance, heightening expectations of future rate cuts or expanded quantitative easing. Bloomberg reported that Kevin Hassett, head of the National Economic Council, is currently the frontrunner — a figure known for his support of lower interest rates.

Trump is expected to announce his choice for the new Fed chair in early 2026, adding another layer of uncertainty for markets already wary of policy shifts.

In the current landscape, the dollar faces a challenging mix: a weakening labor market, expectations of a more accommodative Federal Reserve, and political signals pointing toward looser monetary policy ahead. Although the narrowing trade deficit offers a sliver of support, it remains overshadowed by broader pressures — leaving the US dollar firmly on the defensive in global markets.