U.S. Dollar Set for Third Weekly Decline as Traders Rethink Fed Outlook

The U.S. dollar is on track for its third consecutive weekly decline as investors reassess expectations for future Federal Reserve policy and respond to shifting global currency dynamics.

The dollar index, which measures the U.S. currency against a basket of major peers, stood around 98.34 in Asian trading, marking a weekly drop of about 0.7%. The index has now fallen over 9% for the year, on pace for its steepest annual decline since 2017.

Market Reaction to Fed Commentary

The decline follows the Federal Reserve’s recent rate decision, where policymakers delivered a quarter-point cut as expected but offered a less hawkish tone than markets had priced in. While markets are now betting on further rate reductions next year, some policymakers have signaled only limited cuts ahead.

Uncertainty around the Fed’s future path — including how inflation and unemployment data will evolve — is prompting traders to reprice rate expectations, contributing to selling pressure on the dollar.

Global Currencies Gain Ground

A softer dollar has helped lift other currencies:

• Japanese yen is positioned to snap a recent losing streak, strengthening as markets anticipate possible policy adjustments from the Bank of Japan.
• The Swiss franc has firmed after the Swiss National Bank held rates unchanged and cited improving trade conditions.
• The Australian and New Zealand dollars are also gaining as their economies show resilience and diverging rate prospects attract investor interest.

Outlook and Key Drivers