The US dollar posted slight gains against major currencies on Thursday but remained close to multi-week lows, as markets increasingly bet that the Federal Reserve will resume interest rate cuts next month.
The Japanese yen emerged as a notable beneficiary, with the dollar falling to a three-week low against it after US Treasury Secretary Scott Bessent said the Bank of Japan needs to raise interest rates again soon, while the Fed is preparing for strong cuts.
Rising expectations for monetary easing, coupled with increased institutional investment in cryptocurrencies, pushed Bitcoin to a new record high during the session.
Fed officials have recently shifted to a more dovish tone amid signs of a slowing US labor market, while President Donald Trump’s tariffs have so far not caused a significant increase in inflationary pressures.
According to LSEG data, traders see the September 17 Fed meeting as almost certain to deliver a rate cut, with about a 7% chance of a larger half-point move.
Kyle Rodda, analyst at Capital.com, said: “For markets, the question is no longer if the Fed will cut rates in September, but by how much.” He noted that signs of a cooling labor market have led markets to price in a series of cuts before year-end.
The Fed also faces strong political pressure, with Trump continuing to criticize Chair Jerome Powell for not cutting rates earlier, even threatening to fire him before his term ends in May.
Bessent on Wednesday called for “a series of cuts,” suggesting the Fed begin easing with a half-point reduction.
However, ING currency analyst Francesco Pesole argued that a 50-basis point cut is “unrealistic at the moment,” adding: “For the market to price in such a large move, we would likely need signals from other Fed members that they are open to the idea.”
Later in the session, markets await July US producer price index data, which Pesole said could boost easing expectations if it comes in below forecasts.
Bessent also said the Bank of Japan has “fallen behind” by delaying rate hikes. Norihiro Yamaguchi, economist at Oxford Economics, noted Bessent’s comments had a strong impact on the dollar-yen exchange rate, adding that yen gains are also accelerating due to thin market liquidity during Japan’s Obon holiday.
The dollar fell 0.8% to ¥146.22, the lowest since July 24, before trimming losses to stand down 0.5%.
The euro slipped 0.24% to $1.1677, retreating from Wednesday’s peak of $1.1730, the highest since July 28.
The British pound was little changed by UK GDP data showing the economy slowed less than expected in Q2, easing 0.1% to $1.35645.
In cryptocurrencies, Bitcoin earlier jumped to $124,480.82 — the highest since July 14 — before paring gains to trade 1% lower at around $121,685.
Bitcoin has been strongly supported this year by increased institutional inflows, following a series of regulatory changes spearheaded by Trump, who calls himself the “crypto president.”
In the latest move, Trump last week signed an executive order allowing digital assets to be included in 401(k) retirement plans.
Tony Sycamore, analyst at IG, said: “Corporate treasuries like MicroStrategy and Block Inc. keep buying Bitcoin, and a sustained break above $125,000 could push the coin to $150,000.”
The Australian dollar earlier rose 0.4% to its highest since July 28 at $0.65685 before easing 0.16%.
