[SINGAPORE] The US dollar dipped amid an increase of bets on US interest-rate cuts due to growing expectations that the next US Federal Reserve chairman is likely to ease monetary policy earlier than currently anticipated.
Bloomberg’s gauge of the greenback dropped to the lowest level in three years after The Wall Street Journal reported US President Donald Trump may announce current chair Jerome Powell’s replacement by September or October. Traders are viewing the news as a signal that early interest-rate cuts are becoming more likely, given that Trump has repeatedly pressured Powell to lower borrowing costs.
“Trump’s nomination will amp up the pressure, to the point where we could have a shadow Fed chair before Powell steps down in May next year,” said Rodrigo Catril, a strategist at National Australia Bank in Sydney. “We think it’s fair to suggest that the pressure on Powell to cut rates will increase, and that’s adding to selling pressure on the US dollar.”
The latest headlines on Powell add another element of risk to the US dollar and US Treasuries, which are both already under pressure from uncertainties around the impact of tariffs and a ballooning fiscal deficit.
Bloomberg’s US dollar gauge fell as much as 0.2 per cent to the lowest since April 2022. The gauge has now dropped more than 8 per cent this year. Traders have boosted bets on Fed rate cuts in recent days, and are now pricing in 66 basis points of easing by year-end versus 51 basis points at the end of last week, based on overnight-indexed swaps.
“This is definitely weighing on the bigger US dollar,” Ignatius Pang, head of foreign-exchange sales and execution for Asia at Union Bancaire Privee, said of the news. Episodes of US currency strength are “opportunities to actually look at diversifying” US dollar holdings, he said.
Potential replacements for Powell include Fed governor Kevin Warsh and National Economic Council director Kevin Hassett, The Wall Street Journal reported, citing sources familiar with the matter.
Trump said on Wednesday (Jun 25) he had three or four people in mind to succeed Powell, whose term as chair ends in May 2026. The president has lashed out at the Fed’s position to keep rates on hold, arguing for cuts and saying the central bank is keeping borrowing costs for the US government high.
“It does effectively make Powell less influential as everyone moves their attention to the incoming chair,” said Matthew Haupt, a portfolio manager at Wilson Asset Management in Sydney. “So it’s a dovish tilt.” BLOOMBERG
