Tokyo — The dollar slid on Monday against the yen and was pinned at its lowest in almost four years against the euro, as market optimism over US trade deals bolstered bets for earlier interest rate cuts by the Federal Reserve.
The dollar also languished near a four-year low against sterling and a trough of more than a decade versus the Swiss franc after the White House neared a deal with China, while Canada scrapped a digital services tax to restart stalled talks.
Investors interpreted Fed chair Jerome Powell’s testimony to US Congress last week as dovish, after he said rate cuts were likely if inflation did not spike this summer because of tariffs.
Bets for at least one quarter-point reduction by September have risen to 93.3%, CME Group’s FedWatch Tool shows, from about 83% a week earlier. The Fed’s rate-setting committee also meets in July, but does not gather in August.
A string of data reports is expected out of the US this week, including a key jobs report that could influence market expectations on what the central bank’s next move might be.
“The balance of risks remains tilted to the downside for the dollar, but our calls for only a gradual slowdown in payrolls and an inflation bump in the coming months imply that markets have overshot on dovish pricing,” said Francesco Pesole, a foreign exchange strategist at ING.
Pesole said that any disappointment in the data this week could prompt another round of dollar selling. An additional weight on the dollar came from US President Donald Trump’s continued assault on Powell, after Trump said on Friday he would “love” it if the Fed chief resigned before his term ends in May.
Trump also said he wanted to cut the benchmark rate to 1% from 4.25% to 4.5% now, and reiterated that he planned to replace Powell with a more dovish Fed chair. But the White House has said there were no plans in play to replace the respected Fed chair.
Investors are also keeping an eye on Trump’s big tax cut and spending bill now facing the Senate, which could add $3.3-trillion to the national debt over a decade, according to a Congressional Budget Office estimate.
The dollar index, which measures the US currency against six major counterparts, is on track for its biggest drop in the first six months to a year since the era of free-floating currencies began in the early 1970s.
The index was last flat at 97.181, staying close to a more than three-year low it hit last week. The dollar declined 0.2% to ¥144.315, while the euro was little changed at $1.1728, not far from a level touched last week that marked its highest since September 2021.
The greenback also weakened 0.2% against the Swiss franc and last fetched 0.7970 francs, after dipping on Friday to 0.7955, its lowest level since the Swiss National Bank unexpectedly removed a cap on the currency’s value against the euro in January 2015.
Sterling was flat at $1.3710, hovering close to Thursday’s peak of $1.37701, unseen since October 2021.
Trade deals
On Friday, US treasury secretary Scott Bessent said Washington and Beijing had resolved issues around shipments of Chinese rare earth minerals and magnets to the US, further modifying a May deal in Geneva.
He also said trade deals with other countries could be done by the US Labor Day holiday on September 1, suggesting some wiggle room on Trump’s July 9 deadline to reach deals or face aggressive “reciprocal” tariffs.
“Tariff noise is likely to pick up this week as the July 9 deadline approaches. Some minor deals may be announced this week, but we do not think any deals with the EU, China or Japan are likely to be struck,” said Win Thin, global head of markets strategy at Brown Brothers Harriman.
Both the yuan and the Canadian dollar were marginally higher after the news on trade deals.
Reuters
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