Dollar Weakens as U.S. Economic Concerns and Trade Tensions Fuel Rate Cut Expectations

The U.S. dollar remained under pressure on Friday, heading for its biggest weekly decline in nearly three months amid growing concerns about trade tensions, economic weakness, and potential Federal Reserve rate cuts. The dollar index held at 98.23, down 0.6% for the week, as an extended U.S. government shutdown delayed the release of key economic data, further clouding the outlook for the economy.

According to Pepperstone strategist Dilin Wu, escalating trade frictions and uncertainty surrounding the Fed’s independence are pushing investors toward alternative assets such as gold and cryptocurrencies. “It’s really hard to find a bullish scenario for the dollar index,” Wu noted, adding that investors are seeking safety in assets that can’t easily be devalued.

The Japanese yen strengthened 0.2% to 150.12 per dollar after Bank of Japan Governor Kazuo Ueda signaled readiness to raise rates if growth and inflation forecasts improve. BOJ Deputy Governor Shinichi Uchida is also expected to speak later on Friday. Meanwhile, the euro edged up 0.1% to $1.1701, and the British pound rose 0.1% to $1.3446.

Fed Governor Christopher Waller expressed support for another rate cut at the central bank’s upcoming meeting, citing mixed labor market data. Fellow governor Stephen Miran also backed deeper cuts, aligning with U.S. President Donald Trump’s push for a more aggressive monetary stance. The Fed’s Beige Book highlighted emerging economic weakness, including rising layoffs and softer spending among middle- and lower-income households.

Adding to global uncertainty, China rejected U.S. calls to ease restrictions on rare earth exports, accusing Washington of stoking panic. Meanwhile, digital assets continued to attract investors seeking hedges, with bitcoin gaining 0.6% to $108,534.66 and ether up 1.8% to $3,919.71.