The dollar sank to a more than three-year low even as global shares hit their third record high in three days on Thursday, amid growing market concerns about the Federal Reserve’s independence.
The U.S. dollar index (.DXY) was down nearly 0.5% on the session and more than 10% for the year. If it stays that way in the next few days, it will mark the biggest fall in the first half of a year since the start of the era of free-floating currencies in the early 1970s.
Wall Street’s main indexes were trading higher, with the benchmark S&P 500 and Nasdaq nearing record highs. The Dow Jones Industrial Average (.DJI) rose 0.74% to 43,302.85, the S&P 500 (.SPX) rose 0.66% to 6,132.52, and the Nasdaq Composite (.IXIC) climbed 0.73% to 20,118.65.
European shares (.STOXX) finished up 0.09%. MSCI’s gauge of stocks across the globe (.MIWD00000PUS) rose 0.75% to 908.96, hitting a new record high for the third straight session.
A Wall Street Journal report said President Donald Trump — who has been urging the Fed to cut rates faster — was considering selecting Chair Jerome Powell’s replacement in the next few months ahead of the end of Powell’s term in May.
Powell had just wrapped up two days of testimony to U.S. Congress, where he said the central bank would be cautious in considering further rate cuts as it expects Trump’s tariffs would push prices higher this summer.
Such a move by Trump to install a more compliant Fed chair could erode investor confidence in the central bank’s independence, said Wasif Latif, chief investment officer at Sarmaya Partners in New Jersey.
“The market recognizes that sooner rather than later, Powell will walk off the stage and the next appointment will likely be somebody that’s a little bit softer or dovish or somewhat politically driven,” Latif said. “And the market is saying the next chair will likely be more amenable to big cuts than Powell has been and so I think that’s part of what’s feeding into the dollar weakness and gold is also reflecting that.”
Overnight in Asia, Tokyo’s Nikkei (.N225) jumped 1.65% to its highest level since January, while MSCI’s index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) also finished slightly higher.
The euro is now at its strongest level against the dollar since 2021, with trade tariff talks looming next week in Washington ahead of a Trump-imposed global deadline of July 9.
The dollar also weakened to a decade-low against the Swiss franc at 0.79855 and was down 0.73% to 144.195 against the Japanese yen.
The dollar index (.DXY), which measures the U.S. currency against six peers, now sits at its lowest level since March 2022 after this year’s sharp decline.
“The striking thing on the dollar trend of the last six weeks is that in almost any market regime the dollar is struggling to appreciate,” said Michael Metcalfe of State Street.
“It seems to be in something of structural decline,” he added, noting that investors were now the most negative on the dollar — or “underweight,” in banking terms — since the COVID pandemic.
Traders are now pricing in a nearly 25% chance of the Fed cutting rates at its end-of-July meeting, up from 12.5% last week, according to the CME FedWatch tool.
The yield on benchmark U.S. 10-year notes fell 1.6 basis points to 4.277%. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, dropped 2.9 basis points to 3.75%, its lowest in seven weeks. Germany’s equivalent yield, a European benchmark, fell 0.4 basis points to 2.569%.
Oil prices were on track for their second straight day of gains following this week’s sharp slump after the Trump-brokered ceasefire between longtime Middle East foes Israel and Iran. Trump also announced plans to hold talks with Iran next week on curbing its nuclear ambitions.
Brent crude futures rose 1.2% to $68.49 a barrel. U.S. West Texas Intermediate (WTI) crude gained 1.43% to $65.85.
Gold dipped 0.2% to $3,325.54 an ounce.
