The US dollar held steady on Friday but was on track to record a 2% decline in August against major peers, as markets increasingly bet on a Federal Reserve rate cut next month while concerns persist over threats to the central bank’s independence.
The euro was unchanged at 1.1677 dollars, while the British pound slipped 0.2% to 1.3474 dollars. Both currencies are heading for monthly gains of over 2% against the dollar. Against the Japanese yen, the dollar was steady at 146.975.
The greenback came under additional pressure from President Donald Trump’s efforts to expand his influence over monetary policy, including his attempt this week to remove Fed Governor Lisa Cook.
Cook has filed a lawsuit asserting that Trump lacks the authority to dismiss her, along with a request for a temporary restraining order, with a hearing scheduled for Friday. The legal dispute marks the latest chapter in Trump’s push to reshape the Fed, after repeatedly criticizing the central bank and its Chair Jerome Powell for not cutting rates more aggressively.
Market reaction, however, has been relatively muted, with only modest dollar selling and minor moves along the yield curve, as investors remain focused on the near-term outlook for Fed easing.
According to CME’s FedWatch tool, markets are pricing an 86% chance of a rate cut in September, up from 63% a month ago.
Francesco Pesole, FX strategist at ING, wrote in a note: “While investors are still hesitant to trade heavily on this Fed-related story and remain focused on short-term data-driven developments, downside risks to the dollar have undoubtedly increased.”
Separately, Fed Governor Christopher Waller said on Thursday that he supports starting rate cuts next month and expects further reductions in the following months to bring the policy rate closer to “neutral.”
Investors are also awaiting Friday’s release of the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation measure. The index is expected to show an annual rise of 2.6%, unchanged from June. Tony Sycamore, market analyst at IG, said a reading of 3% or higher could raise concerns given the Fed’s recent dovish shift, though the key focus remains next Friday’s US jobs report ahead of the September FOMC meeting.
In Europe, an ECB survey showed consumer inflation expectations in July remained broadly stable at or above the central bank’s 2% target. Separate data showed French consumer prices rose less than expected in August, while Spain’s EU-harmonized inflation rate held steady at 2.7%. Pesole said: “We do not think this data will prompt markets to significantly reprice ECB rate expectations at this stage.”
Elsewhere, the New Zealand dollar edged higher after Reserve Bank of New Zealand Chair Neil Quigley announced his resignation, following the surprise departure of the central bank’s governor earlier this year.
Meanwhile, the Chinese yuan climbed to its strongest level in 10 months against the dollar, supported by official currency fixing and a rally in local equities, while the Indian rupee hit a record low amid concerns over the economic fallout from steep US tariffs on Indian imports.
