The US dollar weakened on Wednesday, retreating against major global currencies as markets priced in an anticipated interest rate cut by the Federal Reserve amid escalating trade tensions between the United States and China.
Foreign exchange market data showed that the greenback declined to its lowest level in a week after a brief rally last week. The pullback followed remarks by Federal Reserve Chair Jerome Powell, who suggested that further rate cuts may be necessary to support the US economy as trade uncertainty deepens.
Market analysts observed that the dollar traded lower against nearly all major currencies, reflecting a shift in investor sentiment toward safer assets. The dollar index — which measures the greenback’s value against a basket of six major currencies — stayed within last week’s range of 98.70 to 99.55. After nearly touching 99.50 on Tuesday, it slipped to a four-day low near 98.75.
Traders say renewed tensions between Washington and Beijing have contributed significantly to the dollar’s weakness. President Donald Trump’s latest comments about halting purchases of Chinese used cooking oil in retaliation for Beijing’s reduced imports of US soybeans further strained relations.
“The heightened uncertainty surrounding US-China trade policy is weighing on investor confidence and creating headwinds for the dollar,” said one New York-based FX analyst.
As trade hostilities deepened, investors moved toward traditional safe-haven assets such as gold, which climbed above $4,218 per ounce — setting a new record high after closing roughly $100 lower last week.
Despite rising tensions, China has refrained from weaponising its exchange rate. Instead, Beijing set the yuan’s reference rate at its lowest level since last November, a move that market watchers interpret as an attempt to maintain currency stability.
Meanwhile, US bond yields remained soft following Powell’s comments. Analysts say the subdued yield environment and expectations of a near-term rate cut continue to erode the dollar’s strength.
“Market participants are demanding higher premiums to hold dollars due to policy uncertainty and slower economic momentum,” said an economist from JPMorgan.
With geopolitical friction and monetary policy shifts shaping sentiment, traders anticipate that the dollar could remain under pressure in the short term until greater clarity emerges from Washington and Beijing.
