The U.S. dollar continued its slide on Tuesday, hitting levels not seen since early 2022, as markets increasingly price in upcoming interest rate cuts. Meanwhile, President Donald Trump’s proposed tax and spending bill has sparked worries about the nation’s fiscal outlook.
At 04:25 ET (08:25 GMT), the Dollar Index—which measures the greenback against a basket of six major currencies—fell 0.2% to 96.275, marking its lowest point since February 2022.
Pressure Mounts on the Dollar
The dollar’s decline is driven by growing expectations that the Federal Reserve will ease monetary policy soon, coupled with optimism around potential trade deals and ongoing political disputes over Trump’s sweeping tax and spending legislation.
“The dollar continues to grind lower in a move probably now best categorised as an orderly dollar bear trend. After a structurally driven decline of the dollar in April, its losses over the last month or so have become cyclical, as earlier Fed easing becomes priced,” noted analysts at ING in their commentary.
The anticipation of rate cuts is heightened by President Trump’s persistent pressure on the Fed. Recently, he sent Fed Chair Jerome Powell a handwritten note comparing U.S. interest rates to other countries, suggesting the U.S. rate should fall between Japan’s 0.5% and Denmark’s 1.75%.
Trump’s ongoing criticism of Powell and the Fed has unsettled investors, raising questions about the central bank’s independence and credibility—factors weighing on the dollar.
Investor uncertainty is further fueled by the contentious debate in the U.S. Senate over Trump’s tax and spending bill, which faces resistance due to its projected $3.3 trillion increase to the national debt.
ING added, “Back to the short term, the dollar has come quite far already and this bear trend probably needs feeding with some macro news. That news comes today in the form of the June ISM manufacturing release and the JOLTS data.”
Euro Nears Four-Year High
In Europe, the euro slipped slightly by 0.1% to 1.1781 against the dollar, just shy of its recent four-year peak of 1.1808. The single currency surged 13.8% in the first half of the year, marking its best performance for a six-month period on record, according to LSEG data.
Traders are now awaiting preliminary inflation figures from the eurozone, expected to show an annual rate of around 2% for June, aligning with the European Central Bank’s target.
Earlier this month, the ECB cut rates for the eighth time in a year but signaled a likely pause at its next meeting due to ongoing trade uncertainties with the U.S.
Manufacturing purchasing manager indices for France, Germany, and the eurozone will be released later Tuesday, alongside remarks from central bank leaders at the ECB forum in Sintra, Portugal.
Pound Strengthens Despite Housing Data
The British pound gained 0.3% to 1.3764 versus the dollar, near a three-and-a-half-year high reached last week.
However, new data showed UK house prices fell 0.8% in June—a sharper decline than expected and the steepest monthly drop in over two years, according to mortgage lender Nationwide.
“Sterling could also face some political risk as Prime Minister Keir Starmer faces a backbench revolt over welfare reforms. The government has already been forced to make about £4bn of concessions to get the bill through – although its passage is not guaranteed. Any failure to get the bill through could hit sterling and gilts on the view that further concessions will have to be made at a time when there is no fiscal headroom,” ING analysts noted.
Safe-Haven Demand Supports Japanese Yen
In Asia, the Japanese yen strengthened, with USD/JPY dropping 0.7% to 143.06. The yen benefited from safe-haven flows after President Trump criticized Tokyo over its rice import policies and hinted at ending trade negotiations.
Japanese officials said on Tuesday they are still pursuing a tariff deal with the U.S., but remain firm on protecting the country’s agricultural sector.
Meanwhile, USD/CNY edged slightly down to 7.1624, near its strongest level since November, supported by positive manufacturing data. Tuesday’s Caixin PMI revealed China’s manufacturing sector returned to expansion in June, buoyed by a temporary tariff truce between Washington and Beijing.
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