US dollar retreats to two-week trough as investors anticipate Fed rate cut

The US dollar fell to a two-week low on Wednesday after weak US inflation data boosted expectations that the Federal Reserve will cut interest rates next month, while attempts by President Donald Trump to expand his influence over US institutions added pressure on the currency.

The dollar index, which measures the performance of the US currency against a basket of rival currencies, dropped to 97.76, its lowest level since July 28, extending Tuesday’s 0.5% loss.

Data released on Tuesday showed that US consumer prices rose marginally in July, in line with expectations, while the impact of the broad tariffs imposed by Trump on goods prices has so far been limited.

Investors, anticipating an imminent rate cut, welcomed the data and priced in a 98% probability that the Fed will ease policy next month, according to LSEG data.

Francesco Pesole, a strategy analyst at ING, said: “The release of US CPI data was a negative event for the dollar.” He added: “A September rate cut remains strongly priced in.” He noted that while the acceleration in core inflation is not ideal, it is not concerning enough to outweigh the deterioration in the labor market.

Investor confidence in the dollar was further undermined by Trump’s recent attempts to influence the Fed’s independence, after White House spokesperson Karoline Leavitt said on Tuesday that the president is considering suing Federal Reserve Chair Jerome Powell over his handling of the central bank’s headquarters renovation in Washington.

Trump has long been at odds with Powell, repeatedly criticizing him for not cutting interest rates sooner. The US president also attacked Goldman Sachs CEO David Solomon, saying the bank was wrong in predicting that US tariffs would hurt the economy, and questioning whether Solomon is fit to lead the Wall Street institution.

In the currency markets, the dollar’s weakness helped lift both the euro and the British pound; the euro rose 0.3% to $1.1709, briefly hitting its highest level since July 28, while the pound climbed 0.4% to $1.3562, its highest level since July 24.

Data released on Tuesday showed the UK labor market weakened again, despite wage growth remaining strong, which explains the Bank of England’s caution in cutting interest rates.

The Australian dollar rose 0.35% to $0.6552, while the New Zealand dollar gained 0.5% to $0.5986. The Reserve Bank of Australia cut interest rates on Tuesday as expected and signaled that further easing may be needed to meet its inflation and employment goals amid a loss of economic momentum.

In cryptocurrency markets, Bitcoin stalled in its push toward a new record high, falling 0.34% to $119,809, while Ethereum climbed to its highest level in nearly four years at $4,679.

Gracy Lin, CEO of the Singapore branch of crypto exchange OKX, said: “Ethereum’s quiet breakout is driven by real-world adoption and capital confidence,” adding: “On our platform, Ethereum has overtaken Bitcoin to become the most traded asset over the past month.”