The U.S. dollar fell to its lowest level in over three years on Thursday following renewed pressure from President Donald Trump for an accelerated change in leadership at the Federal Reserve and earlier-than-expected interest rate cuts.
Bloomberg’s dollar index dropped by as much as 0.4% to extend its year-to-date decline to over 8% as market participants increased bets that the Federal Reserve will cut interest rates sooner and more aggressively.
The decline was triggered by a Wall Street Journal report indicating that Trump is likely to announce a replacement for Fed Chair Jerome Powell by September or October.
The prospect of a leadership change at the central bank is being interpreted by traders as a signal of further policy easing, reinforcing expectations of a more accommodative stance in the second half of 2025.
“It does effectively make Powell less influential as everyone moves their attention to the incoming chair,” said Matthew Haupt, portfolio manager at Wilson Asset Management. “So it’s a dovish tilt.”
The market is now pricing in 66 basis points of rate cuts by the end of the year, up from 51 basis points a week earlier, according to overnight-indexed swaps data.
The shift in sentiment comes amid growing concerns over the impact of prolonged U.S. fiscal deficits, persistent inflation volatility, and slowing global demand.
The dollar weakened against all major currencies on Thursday, with the most significant gains recorded by the South Korean won, Taiwan dollar, and South African rand.
The greenback’s decline also weighed on U.S. Treasury yields, which fell on rising expectations for monetary easing.
“This is definitely weighing on the big dollar,” said Ignatius Pang, head of foreign exchange sales for Asia at Union Bancaire Privée. “Episodes of U.S. currency strength are now seen as opportunities to diversify holdings.”
Potential successors to Powell reportedly include Federal Reserve Governor Kevin Warsh and National Economic Council Director Kevin Hassett, according to sources cited by the Wall Street Journal. Powell’s term is scheduled to end in May 2026, but the president has been openly critical of his policy stance.
Trump stated on Wednesday that he had “three or four people” in consideration to replace Powell. The president has repeatedly criticized the Fed’s reluctance to cut rates, arguing that the central bank is constraining economic growth and keeping government borrowing costs unnecessarily high.
“It’s fair to suggest that the pressure on Powell to cut rates will increase, and that’s adding to selling pressure on the dollar,” said Rodrigo Catril, currency strategist at National Australia Bank.
Bloomberg strategists noted that investor sentiment has shifted significantly, with July now emerging as a viable window for a 25-basis-point rate cut.
This would precede a broader easing cycle that markets had originally anticipated to begin in September.
The latest developments add another layer of uncertainty to U.S. monetary policy and are likely to keep the dollar under pressure as markets adjust to a potentially rapid transition at the Federal Reserve.
