US Dollar Hits 7-Week Low Amid Fed Rate Cut Bets and Tariff Tensions

Subtitle: Greenback weakens as traders brace for lower interest rates and global uncertainty over Trump’s trade policies

Dollar Slumps as Markets Eye Fed Rate Cuts

The US dollar fell to a seven-week low on Thursday, driven by rising expectations that the Federal Reserve will cut interest rates later this year. Markets are now pricing in two rate cuts of 25 basis points by year-end, with a strong likelihood of the first move as early as September.

The broader dollar index dropped to 98.246, its lowest since 22 April, before slightly rebounding to 98.419. This decline reflects mounting uncertainty in both monetary policy and global trade dynamics.

Tariff Confusion Fuels Investor Caution

Adding to pressure on the dollar were mixed messages from former President Donald Trump regarding upcoming trade deadlines. Trump said he may extend the 8 July deadline for trade talks with key partners, but also warned that letters would soon be sent to dozens of countries, outlining strict trade terms.

This lack of clarity, combined with vague details of a recently announced US-China framework agreement, has raised red flags among investors.

“Despite the truce, markets are left wondering what comes next,” said one analyst.
“The absence of solid commitments has increased risk-off sentiment.”

Euro and Yen Strengthen Against the Dollar

The greenback’s weakness gave a boost to rival currencies:

• Euro hit a 7-week high early Thursday, trading at $1.1513
• Sterling remained flat at $1.3544
• Japanese yen gained 0.4%, reaching 143.95 per dollar
• Swiss franc rose 0.38%, trading at 0.8170

Meanwhile, the Chinese yuan edged up 0.1%, though its gains were limited by ongoing concerns around the fragile trade truce.

Inflation Outlook Key to Fed’s Next Move

US Treasury yields fell after core inflation data eased pressure on the Fed to keep interest rates elevated. However, upcoming figures—such as the Producer Price Index (PPI) and Personal Consumption Expenditures (PCE)—could influence future policy.

Barclays forecasts a 0.22% rise in May’s core PCE, bringing the annual rate to 2.7%. If inflation remains elevated due to tariff-related cost pressures, the Fed may take a more cautious approach.

“Price pressures could resurface through the second half of the year,” noted David Doyle, Head of Economics at Macquarie.

European Outlook Brightens

The euro continues to benefit from hawkish signals by the European Central Bank (ECB), which last week paused its rate-cutting cycle after inflation returned to target. This divergence from the Fed’s dovish trajectory has supported capital inflows into the eurozone.

The euro has now gained nearly 11% year-to-date, with investors shifting funds away from the US in search of stability.

What This Means for Investing in 2025

The weakening dollar, combined with Trump’s unpredictable tariff policies, is reshaping global investment strategies:

• Currency risk is rising, especially for dollar-based assets
• Investors are looking to eurozone markets for stability and yield
• Sectors exposed to trade (e.g., tech and manufacturing) face continued volatility
• Gold and other safe-haven assets may become more attractive

If the tariff environment remains unstable, investors could increasingly favour diversified portfolios and regions less directly impacted by US trade policy.

Summary: Dollar Dips, Uncertainty Grows

• US dollar hits 7-week low on rate cut expectations
• Trump’s tariff timeline and trade terms fuel investor nervousness
• Euro and yen gain strength as capital flows shift
• Inflation data and Fed response remain critical
• 2025 investment trends may pivot towards Europe and safe-haven assets

The road ahead for markets is murky, with policy unpredictability and currency shifts set to shape the investing landscape throughout 2025.

Sources: (Investing.com, ChatGPT)