Dollar slips as Fed rate cut bets grow amid Trump–Fed tensions

The US dollar weakened on Wednesday after a softer-than-expected inflation reading reinforced market expectations that the Federal Reserve could cut interest rates as early as September. According to Reuters, President Donald Trump’s escalating clashes with US institutions, including the Fed, further weighed on the currency’s sentiment.

Inflation data fuels rate cut bets

Data from the US Labor Department showed consumer prices rose only marginally in July, in line with forecasts. As per Reuters, the impact of Trump’s sweeping tariffs on goods prices has so far been limited, with the July CPI report showing little evidence of strong tariff pass-through to consumers. The muted reading encouraged traders to price in a 98 per cent chance of a Fed rate cut next month, pulling the greenback lower.

The dollar index stood at 98.08, after sliding about 0.5 per cent in the previous session. Against the yen, the dollar eased 0.05 per cent to 147.76, while the euro held steady at $1.1676 after a 0.5 per cent gain on Tuesday. US Treasury yields also fell on the heightened rate cut expectations, with the two-year yield at 3.7371 per cent and the benchmark 10-year yield hovering at 4.2965 per cent, according to Reuters.

Trump’s pushback against the Fed

Market confidence in the dollar was further eroded by President Trump’s renewed attempts to challenge the Fed’s independence. Reuters reported that White House spokeswoman Karoline Leavitt said Trump was considering legal action against Fed Chair Jerome Powell over his management of renovation works at the central bank’s Washington headquarters.

Trump has repeatedly criticised Powell for not cutting rates sooner and also targeted Goldman Sachs CEO David Solomon, accusing the Wall Street bank of being wrong about the economic impact of US tariffs.

Pound gains despite weak jobs market

In the UK, the pound edged 0.03 per cent higher to $1.3504, supported by steady wage growth despite a weakening labour market. According to Reuters, Britain’s latest jobs data underscored why the Bank of England remains cautious about easing policy, with analysts at Pepperstone forecasting the next rate cut in November if economic conditions warrant.

Asia-Pacific currencies mixed after RBA cut

In the Asia-Pacific region, the Australian dollar slipped 0.05 per cent to $0.6526, while the New Zealand dollar fell 0.03 per cent to $0.5953. The Reserve Bank of Australia, as per Reuters, lowered interest rates on Tuesday as expected and signalled that further policy easing could be needed to support growth and meet inflation targets.

(With inputs from the agencies)