Dollar drops to lowest since 2021 against euro, sterling
The dollar hit a three-and-a-half-year low against the euro and sterling on Thursday in a broad selloff as traders priced in the likelihood that the Federal Reserve will cut rates more than previously expected.
“This week it's definitely been about the Fed, the prospect of easing sooner and potentially more rate cuts,” said Eric Theoret, FX strategist at Scotiabank in Toronto.
Fed Chair Jerome Powell was interpreted as being more dovish this week in testimony to U.S. Congress, saying that, if it were not for expectations for higher inflation as a result of the Trump administration’s tariffs, the U.S. central bank would have likely continued to cut interest rates.
He nonetheless maintained that the Fed should stand pat as it anticipates an increase in price pressures this summer.
U.S. President Donald Trump will nominate a new Fed Chair next year who is expected to be more dovish than Powell, whose term will end in May.
Trump on Wednesday called Powell "terrible" and said he has three or four people in mind as contenders for the top Fed job. The Wall Street Journal reported on Wednesday that Trump has toyed with the idea of selecting and announcing Powell's replacement by September or October.
Analysts say that person could operate as a shadow Fed chair, undermining Powell’s influence.
Fed funds futures traders are pricing in 65 basis points of cuts by year-end, up from 46 basis points on Friday, with the first cut expected in September.
The euro was last up 0.39% at $1.1705 and reached $1.1744, the highest since September 2021. Sterling rose 0.45% at $1.3728 and got as high as $1.3764, its highest since October 2021.
Source: Reuters
