The dollar hit a fresh three-and-a-half-year low against the euro on Friday as traders bet that the Federal Reserve will cut rates more times and possibly sooner than previously expected as some U.S. data points to a weakening economy.
A report on Friday showed that U.S. consumer spending unexpectedly fell in May as the boost from the pre-emptive buying of goods like motor vehicles ahead of tariffs faded, while monthly inflation increases remained moderate.
A weekly jobs report on Thursday showed that continuing unemployment claims rose to the highest level since November 2021 while gross domestic product figures for the first quarter reflected a sharp downgrade to consumer spending.
“Some of the data that we’ve had has not been particularly good over the last few days,” said Lou Brien, strategist at DRW Trading in Chicago.
Fed Chair Jerome Powell’s testimony to U.S. Congress this week was interpreted as dovish after he noted that rate cuts are likely if inflation doesn’t increase this summer as he expects.
Reports that U.S. President Donald Trump could also appoint a replacement for Powell in the coming months have added to dollar weakness.
The new Fed chair is expected to be more dovish and an early appointment could undermine Powell’s influence by acting as a shadow chair before Powell’s term ends in May.
Trump has not decided on Powell’s replacement and a decision isn’t imminent, a person familiar with the White House’s deliberations said on Thursday.
The dollar index fell 0.15% to 97.23 while the euro was last up 0.21% to $1.1723. The single currency reached $1.1754, the highest since September 2021.
The euro got a small uplift after data showed French consumer prices rose more than expected in June, while Spain’s 12-month EU-harmonised inflation also inched higher.
Fed rate cuts would reduce the interest rate advantage of the dollar relative to peers.
Traders are pricing in 65 basis points of cuts by year end, up from 46 basis points a week ago.
The long-term outlook for the dollar is also seen as challenging as foreign investors reevaluate the “American exceptionalism” that has drawn investment to the country.
Brien said that the impact of the Biden administration’s policies was also still weighing on the currency.
Former President Joe Biden cut off Russia’s access to the U.S. dollar, froze its assets and imposed sanctions following the country’s invasion of Ukraine in 2022, which analysts say led other countries to accelerate shifts away from U.S. dollar reliance.
“The Biden administration weaponized the dollar as it really had not been weaponized before,” Brien said. “That aspect of it is still in the back of people’s heads.”
Against the Japanese yen, the dollar strengthened 0.19% to 144.65.
Core consumer inflation in Japan’s capital slowed sharply in June due to temporary cuts to utility bills but stayed well above the central bank’s 2% target, keeping alive market expectations for further interest rate hikes.
In cryptocurrencies, bitcoin fell 1.13% to $106,594.
(Reporting by Karen Brettell Additional reporting by Lucy Raitano and Ankur Banerjee Editing by Frances Kerry)
