The dollar index fell to 97.1 on Friday, its lowest level since February 2022, extending this week’s drop to almost 2%, driven by mounting expectations of Fed rate cuts. Chair Powell struck a notably dovish tone during recent congressional testimony, suggesting that in the absence of inflationary pressures from tariffs, the Fed would have continued its rate-cutting cycle.
Reports also suggested that President Trump may announce his pick for the next Fed Chair as early as September or October, potentially creating a “shadow” leadership structure that could guide monetary policy in a more dovish direction. Meanwhile, US economic data showed personal consumption expenditures fell 0.3% in May, the sharpest drop this year. The Fed’s preferred inflation gauge, core PCE (excluding food and energy), rose 0.2%, slightly above forecasts. As a result, the dollar weakened to a three-and-a-half year low against the euro and sterling, while hitting multi-month lows versus other currencies.
