The US dollar was set for its ninth straight decline on Wednesday as traders increasingly bet on Federal Reserve rate cuts following a series of economic data points and signals of a more dovish monetary policy stance.
Investors also weighed the growing prospect of a new Fed chair, adding complexity to expectations for future policy decisions.
The dollar index, which tracks the US currency against six major counterparts, fell 0.15 percent to 99.10, marking a near nine percent drop for the year.
The euro and Japanese yen showed modest gains, reflecting a shift in investor sentiment toward other global currencies.
Federal Reserve officials have hinted at potential policy easing as the US labor market shows signs of softening.
Fed Governor Christopher Waller said last week that the labor market is weak enough to justify another quarter point rate cut in December.
Meanwhile, White House economic adviser Kevin Hassett emerged as the frontrunner to become the next Fed chair, prompting discussions about the potential implications for the central bank’s strategy.
President Donald Trump said he would announce his pick for the next Fed chair early in 2026.
“Such an announcement, if it occurs this early, will create a ‘shadow Fed chair’ since current Fed Chair Powell’s term does not end until May,” said Kristina Hooper, chief market strategist at Man Group.
“This could complicate the Fed’s ability to communicate monetary policy and could create some confusion for markets at a time when they need clarity.”
Market participants are pricing in an 87 percent chance of a rate cut this month, up from 30 percent in mid November, according to the CME Group’s FedWatch tool.
Analysts said that with a December move largely priced in, investors will now shift focus to the Fed’s longer term path, which currently implies 88 basis points of cuts by December 2026.
“The market is signaling that it expects the Fed to act sooner rather than later,” said Martin Keller, senior economist at Global Insights.
“If labor market softness persists and inflation trends lower, further cuts could be on the horizon, which is weighing on the dollar.”
European markets responded modestly to the dollar’s weakness. The euro rose 0.11 percent to $1.1639, with investors closely monitoring developments in Ukraine, where peace talks could influence regional energy costs and economic stability.
However, no agreement was reached in a five-hour Kremlin meeting between President Vladimir Putin and US envoys, the Kremlin said on Wednesday. Analysts suggested the euro could strengthen further if a ceasefire or full peace accord is achieved, especially with defense spending supporting economic activity in the coming years.
In Japan, the yen moved slightly lower against the dollar, trading at 155.69 after a small gain the previous day.
Bank of Japan Governor Kazuo Ueda signaled a potential rate hike later this month, marking one of the clearest indications yet of tightening monetary policy in Tokyo.
Eurozone inflation data released on Tuesday came in slightly above expectations, but the European Central Bank is still expected to maintain its policy rate through early 2027.
This contrasts with the US where markets are anticipating significant rate cuts by the Fed over the next year.
Analysts note that while the dollar’s decline is notable, it remains influenced by a complex mix of global factors, including geopolitical tensions, central bank policy divergence, and economic indicators.
Currency traders said the dovish Fed outlook has shifted investor behavior. “There is a clear pivot away from the dollar,” said Luis Fernandez, a foreign exchange trader at Capital Markets Group.
“Every economic report that shows softening employment or slower growth fuels expectations of rate cuts, and that translates directly into dollar weakness.”
European investors echoed similar views. “We are seeing some cautious optimism in the euro,” said Sofia Romano, a portfolio manager based in Milan.
“Peace developments in Ukraine and stable ECB policy provide some upside support for the single currency.”
Looking ahead, market participants expect the dollar to remain under pressure as long as rate cut expectations persist and the Fed continues signaling a dovish stance.
Any early announcement of a new Fed chair could introduce additional uncertainty, potentially affecting the dollar and global currency markets.
“The next few months will be critical,” said Keller. “Investors are not just watching the data, but also Fed communications and geopolitical developments that can influence sentiment across currency markets.”
The US dollar is experiencing a prolonged decline as investors factor in potential Federal Reserve rate cuts and uncertainty surrounding the appointment of a new Fed chair.
With the euro and yen showing resilience and global economic and geopolitical developments influencing currency flows, the dollar’s path remains closely tied to policy signals and market expectations.
