U.S. Dollar Struggles as Fed Rate Cut Bets Rise Amid Renewed U.S.-China Tensions

The U.S. dollar weakened early Wednesday after Federal Reserve Chair Jerome Powell’s comments strengthened market expectations of an interest rate cut later this month. Powell signaled that the Fed remains open to easing policy at its October 28–29 meeting, citing a sluggish labor market and the ongoing government shutdown, which has limited official economic data but not hindered the Fed’s assessment of the outlook.

Following Powell’s remarks, the dollar index — which measures the greenback against six major currencies including the yen, euro, and Swiss franc — steadied at 99.055 after a 0.2% dip on Tuesday. The greenback held at 151.80 yen after slipping 0.3% in the prior session, while it traded flat at 0.8013 Swiss franc following a similar decline overnight. The euro also maintained its gains, holding at $1.1606 after advancing 0.3% the day before, supported by the French government’s proposal to pause contentious pension reforms.

Markets now anticipate a quarter-point rate cut this month and another in December, with several more reductions expected next year, according to LSEG data.

On the geopolitical front, the U.S. and China reignited trade tensions with reciprocal fees on shipping companies, escalating fears of further economic disruption. President Donald Trump hinted at potentially cutting certain trade ties with Beijing, raising investor anxiety and boosting safe-haven demand.

Joseph Capurso, head of foreign exchange at Commonwealth Bank of Australia, warned that U.S.-China tensions could intensify further, putting pressure on risk-sensitive currencies like the Australian dollar. The Aussie edged up 0.1% to $0.6491 after touching a three-week low on Tuesday, while the New Zealand dollar eased 0.1% to $0.5706, extending a six-month low.