Dollar Stays Weak as Traders Bet on More U.S. Rate Cuts

The U.S. dollar hovered near its weakest level in almost a week on Wednesday, pressured by market expectations of further interest rate cuts this year despite the Federal Reserve’s cautious stance. The dollar index, which measures the greenback against six major peers, was last at 97.230 as of 2305 GMT after briefly touching 97.198, its lowest since Thursday. The index has already fallen 0.5% this week as investors bet on two additional quarter-point cuts at the Fed’s remaining meetings this year. Another reduction is also anticipated in early 2026, aligning with forecasts from Fed officials after last week’s cut.

The dollar had initially rebounded from a low of 96.224—its weakest since early 2022—following the Fed’s policy decision and Chair Jerome Powell’s remarks. However, Powell’s comments disappointed markets that were hoping for stronger signals of dovish policy. Powell stressed the need to balance the risks of persistent inflation with those of a weakening labor market, describing the challenge as a “difficult situation.”

Market analysts noted that Powell’s remarks reinforced the Fed’s cautious approach. James Kniveton, senior corporate forex dealer at Convera, highlighted Powell’s warning that cutting rates too quickly could fuel inflation, while keeping policy too tight might hurt employment growth.

Currency movements reflected the uncertainty. The dollar eased slightly to 147.59 yen, while the euro edged higher to $1.1816. Australia’s dollar dipped modestly to $0.6598 ahead of key consumer inflation data.

Investors continue to closely monitor Fed signals as they weigh the outlook for U.S. monetary policy, economic growth, and the dollar’s trajectory. With expectations of rate cuts dominating sentiment, the greenback may remain under pressure in the coming months unless economic data shifts market confidence.