The U.S. dollar faced headwinds against major currencies on Thursday as traders increased wagers on a potential Federal Reserve interest rate cut next month, following comments from New York Fed President John Williams suggesting such a move could occur.
The greenback is also under added pressure from President Donald Trump’s intensified efforts to influence monetary policy, including his attempt to remove Fed Governor Lisa Cook and replace her with an ally.
Against the euro, the dollar remained on the defensive even after France’s prime minister unexpectedly announced a confidence vote for next month, which is expected to topple his minority government.
The dollar index, which tracks the currency against six major peers, held steady at 98.145 after two days of declines. The euro was largely unchanged at $1.1640, while sterling inched up to $1.3505.
The U.S. currency slipped 0.14% to 0.8015 Swiss franc and fell 0.19% to 147.11 yen.
Japan’s top trade negotiator, Ryosei Akazawa, canceled a last-minute trip to Washington Thursday, delaying the disclosure of Japan’s $550 billion investment pledge in the U.S. as part of a tariff agreement. A government spokesperson explained that the decision came after discussions with the U.S. side revealed issues that required further discussion “at the administrative level.”
Speaking on U.S. monetary policy, Williams told CNBC Wednesday that “every meeting is, from my perspective, live.”
He added, “Risks are more in balance. We are going to just have to see how the data play out.”
Investors are now focused on key economic indicators ahead of the Fed’s September 16-17 policy meeting, notably the PCE price index on Friday—the central bank’s preferred inflation measure—and the monthly payrolls report a week later.
Traders currently assign roughly an 89% probability to a 25-basis-point rate cut next month and have priced in cumulative easing of 55 basis points by year-end, according to LSEG data. This has contributed to a drop in two-year Treasury yields, which are highly sensitive to policy expectations, sending them to their lowest levels since May 1 overnight and adding pressure to the dollar.
Trump’s drive to install hand-picked, dovish-leaning members on the Fed’s decision-making committee has also pushed short-term yields lower, though his attempt to remove Cook could trigger a lengthy legal battle after she sued to retain her position.
As DBS analysts noted, “The crux of the issue lies with whether Trump can remove Cook before March,” when the 12 reserve bank presidents must be reappointed by the board of governors.
They added, “In such a case, Trump could install his own, dovish picks, and as a result, ‘a more aggressive rate cut pace—one every meeting or even jumbo cuts—50 bps at a go—may be in the offing.’”
In offshore trading, the dollar dipped 0.03% to 7.1495 yuan. The Australian dollar held steady at $0.6507 after a 0.4% gain over the previous two sessions. Bitcoin rose 0.4% to around $112,913.
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