US Dollar Hit’s Three Year Low as Fed Pressure Amps Up

The U.S. dollar is under intense pressure, hitting a three-year low as markets grapple with the increasing likelihood of aggressive interest rate cuts and the potential for political interference in the Federal Reserve’s independence. The Dollar Index (DXY), a measure of the dollar’s value against a basket of major currencies, is currently trading at 97.114, down 0.46% on the day and a staggering 10% lower than where it began 2025.

This sharp decline is fueled by reports suggesting that President Donald Trump is considering announcing his nominee to succeed Jerome Powell as Fed Chair as early as this autumn, well before Powell’s term expires in May 2026. This move has ignited fears of a dovish successor who would be more inclined to lower interest rates, potentially undermining Powell’s authority and the Fed’s credibility in its final months.

The market’s reaction has been swift and decisive. U.S. bond yields have plummeted as investors price in a more aggressive easing cycle. The interest rate futures market is now forecasting 2.5 rate cuts for the remainder of 2025 and another 2.5 cuts in 2026, bringing the projected U.S. interest rate down to a mere 3% by the end of 2026. This level would undoubtedly be welcomed by President Trump, who has consistently advocated for a “growth-orientated monetary policy,” but it also raises serious questions about the Fed’s ability to operate independently from political pressure.

The possibility of an early announcement of Powell’s successor has created a volatile environment, with analysts warning of a potential “shadow Fed” emerging. If the nominee holds significantly different views on monetary policy than Powell, their pronouncements could overshadow official Fed meetings and further destabilize market sentiment.

Potential candidates being floated for the Fed Chair position include Kevin Warsh, a former Fed governor, Kevin Hassett, Christopher Waller (who publicly called for a rate cut as early as July), and even current Treasury Secretary Scott Bessent. The diverse backgrounds and policy leanings of these individuals add another layer of uncertainty to the already complex situation.

Adding to the turmoil, a clear division has emerged within the Federal Reserve itself. Governor Christopher Waller has publicly advocated for rate cuts as early as July, citing declining inflation data. This contrasts with the more cautious stance of other FOMC members, further complicating the Fed’s messaging and contributing to market volatility.

Trying to predict a bottom for the dollar in this environment seems increasingly futile.

As long as fiscal and political developments continue to dominate the narrative, the dollar will remain vulnerable to further declines.

Technically, the DXY has broken below key support levels, including its 50-day and 200-day moving averages, signaling further bearish momentum. The index is now trading at its lowest level against the euro since 2021, highlighting the extent of the dollar’s weakness.

The market’s pricing of rate cuts has dramatically shifted, with the probability of a rate cut at the next Fed meeting in July rising to 25%, up from just 12% a week ago. By year-end, markets expect 64 basis points of cuts, a significant increase from the 46 basis points forecast just last Friday. This rapid repricing reflects the growing conviction that the Fed will be forced to adopt a more dovish stance, regardless of its own assessment of the economic data.