Dollar languishes on dovish Fed bets

The dollar index slipped to around 97.6 on Thursday, its weakest level in more than two weeks, as traders boosted wagers that the Federal Reserve will cut interest rates multiple times before year-end.

The latest U.S. consumer price data came in softer than expected, suggesting that President Donald Trump’s tariff measures have yet to generate significant upward pressure on prices. At the same time, signs of a cooling labor market — including rising jobless claims and a slowdown in hiring momentum — have reinforced expectations for a more accommodative policy stance.

Markets are now almost fully pricing in a 25-basis-point rate cut in September, while some participants are positioning for a larger 50-basis-point move. Treasury Secretary Scott Bessent added to dovish sentiment by calling for a series of rate reductions, even suggesting that the Fed’s first step should be a half-point cut to preempt a deeper slowdown.

Such a move would further narrow the interest rate differential between the U.S. and its peers, pressuring the dollar in global currency markets.

Attention now shifts to July’s Producer Price Index and the latest weekly jobless claims, both due later this week. These releases will be scrutinized for confirmation of easing inflationary pressures and labor market softness, which could strengthen the case for more aggressive Fed easing in the coming months.

The greenback weakened broadly against major peers, with the steepest losses recorded versus the Australian dollar and the Japanese yen. The yen’s gains were amplified by safe-haven flows and speculation that the Bank of Japan could take steps toward policy normalization, while the Australian dollar drew support from firmer commodity prices and the extended U.S.–China trade truce.

If upcoming U.S. data reinforce the dovish narrative and the Fed signals readiness for larger cuts, the dollar could face additional downside pressure in the weeks ahead. However, any upside surprises in inflation or labor market strength could slow the currency’s decline and prompt traders to reassess the odds of a half-point move in September.