The U.S. dollar traded little changed on Thursday as investors increased their bets that the Federal Reserve could reduce interest rates as soon as next month.
The speculation followed comments from New York Fed President John Williams, who told CNBC on Wednesday that policymakers may find it appropriate to lower rates depending on incoming economic data.
Key reports ahead of the September 16–17 policy meeting include Friday’s release of the PCE price index, the Fed’s preferred measure of inflation, as well as the monthly payrolls report expected the following week.
Market Bets on Policy Easing
According to data from LSEG, traders are assigning an 89% probability of a quarter-point rate cut next month.
Markets are also pricing in a total of 55 basis points of easing before year-end.
The heightened expectations pushed two-year Treasury yields, which are closely tied to Fed policy outlook, to their lowest level since May 1.
This added further downward pressure on the dollar.
Chris Turner, global head of markets at ING, noted that short-term yields remain depressed, suggesting market participants view political tensions at the Fed as dollar-negative.
Trump’s Push for Fed Influence
The dollar has also faced headwinds from President Donald Trump’s renewed efforts to reshape monetary policy leadership.
Trump has intensified attempts to remove Fed Governor Lisa Cook and replace her with a loyalist more aligned with his economic agenda.
Cook has filed a lawsuit to fight the move, raising the possibility of a prolonged legal battle.
Despite the uncertainty, Trump’s push for dovish-leaning candidates has fueled expectations of lower interest rates, further weighing on the currency.
Dollar Moves Against Major Currencies
The dollar index, which measures the U.S. currency against six major peers, rose 0.1% to 98.225 after two straight days of declines.
Against the euro, the dollar was flat at $1.1630.
The greenback slipped 0.03% to 147.34 against the yen.
Meanwhile, the dollar fell 0.2% against China’s offshore yuan, touching its weakest level since November at 7.1360.
Political Developments in Europe and Asia
In Europe, traders shrugged off political turmoil in France, where Prime Minister Gabriel Attal unexpectedly called a confidence vote that could topple his minority government.
Despite the uncertainty, the euro remained largely unchanged.
Elsewhere, Japan’s chief trade negotiator Ryosei Akazawa canceled a planned trip to Washington on Thursday.
The visit was expected to finalize details of a $550 billion Japanese investment pledge in the United States tied to tariff negotiations.
A government spokesperson explained that unresolved issues required further discussion at the “administrative level,” delaying an official announcement.
Outlook Hinges on Economic Data
With the Fed’s September meeting looming, investors are now focused squarely on the upcoming economic releases that could influence the central bank’s decision.
If inflation and employment data signal weakness, the likelihood of a September rate cut could rise even further.
For now, the dollar remains steady, but mounting political and policy uncertainties continue to cloud its outlook.