The U.S. dollar fell on Monday, weakening against the yen and hovering near its lowest point in almost four years versus the euro, as growing optimism over U.S. trade deals fueled expectations of earlier interest rate cuts by the Federal Reserve.
The greenback also declined close to a four-year low against the British pound and hit its weakest level in over a decade against the Swiss franc. These moves came as the White House approached a trade agreement with China, and Canada withdrew a digital services tax to resume stalled negotiations.
Both the Chinese yuan and Canadian dollar gained in response.
Investor sentiment shifted after Fed Chair Jerome Powell gave dovish testimony to Congress last week, suggesting rate cuts could be on the table if summer inflation doesn’t spike due to tariffs.
According to the CME FedWatch Tool, market odds for a quarter-point rate cut by September have climbed to 91.5%, up from 83% the previous week. While the Fed will meet next month, it does not convene again until September.
“The market is treating a September rate cut as virtually guaranteed,” said Chris Weston, head of research at Pepperstone. He added that Friday’s U.S. jobs report would be a key moment for the markets, noting the dollar is more likely to fall on weak data than rally on strong figures due to the Fed’s current bias.
The dollar also faced pressure from Donald Trump’s latest criticism of Jerome Powell. Trump said on Friday he would “love” for Powell to step down before his term ends in May and repeated his desire to cut interest rates to 1%, down from the current 4.25%–4.5% range. He has indicated he intends to replace Powell with a more dovish alternative.
Markets are also watching the Senate’s debate on Trump’s massive tax and spending bill, which the Congressional Budget Office estimates would add $3.3 trillion to the national debt over ten years.
The U.S. Dollar Index, which tracks the currency against six major peers, slipped 0.1% to 97.083, staying close to Friday’s three-year low of 96.933.
