Dollar falls to 3.5-year low on expectations of US Federal Reserve rate cut

On Friday, the dollar is hovering near its lowest level in three and a half years against the euro and sterling amid traders' reassessment of the US Central Bank's monetary policy prospects.

This week, the current head of the US Federal Reserve (Fed), Jerome Powell, emphasized the need to keep interest rates unchanged until the impact of import tariffs on the US economy manifests itself. The official stated this during his testimony to Congress.

However, as it was revealed on Wednesday, Donald Trump is considering naming a successor to Powell, who leaves office in May 2026, as early as this fall.

Trump has repeatedly urged the Fed to cut rates more aggressively. A new head of the regulator, appointed by the President, may take a more dovish stance that is in line with the administration, Reuters noted. Also, the announcement of a new Fed chairman is likely to weaken the influence of Powell's views. All of these factors reinforce expectations of more Fed interest rate cuts.

Now, according to Reuters, traders are forecasting cuts of an average of 64 basis points this year.