Dollar slides as traders bet on early Fed rate cuts amid talk of Powell replacement

Bloomberg’s dollar index dropped to a three-year low after the Wall Street Journal reported that Trump could name a new Fed chief by September or October.

The development has bolstered market expectations that a more dovish approach to monetary policy is on the horizon, as Trump has consistently urged Powell to cut rates.

“There’s a growing sense that Powell’s influence may wane well before his term officially ends in May next year,” said Rodrigo Catril, strategist at National Australia Bank Ltd. in Sydney, according to the Bloomberg reported. “This adds to pressure on the Fed to cut, fuelling further dollar weakness.”

The report has added to existing headwinds for the greenback and US Treasuries, which are already under pressure from ongoing trade tensions and the country’s rising fiscal deficit.

Bloomberg’s dollar gauge slipped as much as 0.2% to its weakest level since April 2022 and has now fallen over 8% since the beginning of the year.

Traders are currently pricing in 66 basis points of rate cuts by the end of 2025, up from 51 basis points at the end of last week, based on overnight-indexed swap data.

“This shift is definitely weighing on the broader dollar,” said Ignatius Pang, head of FX sales and execution for Asia at Union Bancaire Privee, according to the Bloomberg report. “Recent bouts of dollar strength could be an opportunity to diversify holdings.”

According to the Wall Street Journal, potential successors to Powell include Fed governor Kevin Warsh and National Economic Council director Kevin Hassett.

Trump told reporters on Wednesday that he is considering three or four candidates to succeed Powell, who was appointed under his administration but whose policy stance has since drawn sharp criticism.

“He’s effectively a lame duck now,” said Matthew Haupt, portfolio manager at Wilson Asset Management in Sydney. “Attention is already shifting to who’s next, and that tilts expectations further toward rate cuts.”