Dollar Weakens as September Fed Cut Bets Ramp Up

Markets woke to another session in which the dollar weakened against its peers, driven by mounting confidence that the Federal Reserve will deliver an interest rate cut in September. New York Fed President John Williams added fuel to the move by openly acknowledging that easing could be appropriate, depending on economic readings.

This dovish tone arrives amid heightened political turmoil. President Trump’s overtures to remove Gov. Lisa Cook and install more amenable figures have sparked legal backlash and raised concerns that monetary policymaking is losing its independence. Sophisticated investors took notice, and the result has been a sustained dollar weakens narrative across forex markets.

Although the dollar index sits near 98.15, compared to last month’s levels, it is measurably lower. Across the board, major currencies strengthened modestly, including the euro, yen, and Swiss franc. Traders now place a high probability on a September cut, prompting further downward pressure on the dollar.

Investment flows reflect this shift. With uncertainty mounting, demand for safe haven dollar assets has receded. Simultaneously, traders remain cautious due to a flood of upcoming data, including the Fed’s preferred inflation gauge, the PCE, and the next payrolls report. This backdrop has kept volatility elevated while the dollar weakens.

Foreign policy also played a role, as a delay in a US-Japan investment announcement added to the sense of volatility. A cancelled trip by Japan’s trade negotiator reinforced the global ripple effects of domestic US instability, amplifying the dollar weakens trend.

Longer term, the dollar’s retreat raises questions about inflation risk and international monetary stability. As the Fed appears to lean toward easing, capital flows may shift to higher-yielding, more stable economies, further eroding the dollar’s dominance.

Ultimately, the storyline is clear: the dollar weakens as markets price in both imminent rate cuts and unresolved political drama. Observers await crucial economic data, but for now, the greenback’s fall feels less like a blip and more like a significant trend shift.

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