The US dollar index held its ground at 97.2 on Friday, halting a week-long slide that saw the greenback fall nearly 2%—its steepest decline since early 2022—as markets brace for potential interest rate cuts by the Federal Reserve.
Following four consecutive days of losses, sentiment around the dollar remained muted as Fed Chair Jerome Powell adopted a dovish stance during his testimony to Congress. Powell noted that, absent inflationary shocks such as tariffs, the central bank would have likely pursued further monetary easing.
Tensions between Iran and Israel have also eased, with a fragile ceasefire holding firm. This has improved global risk sentiment, weakening demand for the traditionally safe-haven dollar. However, speculation is mounting over the future of the Fed’s leadership, as reports suggest that President Trump may announce an early successor to Chair Powell, raising concerns over the central bank’s independence.
The greenback also came under additional pressure from disappointing US economic data. First-quarter GDP shrank by 0.5%, a deeper contraction than anticipated, while continuing jobless claims reached their highest level since 2021.
On Friday, the dollar index dipped further to 97.1—its lowest since February 2022—highlighting a sustained loss in momentum. The euro and British pound both strengthened, with the greenback hitting three-and-a-half-year lows against both currencies and declining against a basket of others.
Adding to the uncertainty, the latest personal consumption expenditure (PCE) report revealed a 0.3% decline in May—marking the sharpest monthly drop this year. Meanwhile, the Fed’s preferred inflation gauge, the core PCE (excluding volatile food and energy costs), rose by 0.2%, slightly exceeding analyst expectations.
These indicators reinforce projections of a Fed policy shift toward rate reductions later in the year, which could continue to weigh on the dollar in the coming months.
