The dollar falls to a three-and-a-half-year low against the euro on Friday as traders expect the Federal Reserve to cut interest rates more often and possibly sooner due to signs of a slowing U.S. economy.
U.S. consumer spending unexpectedly declines in May. The drop follows a period of pre-tariff buying that boosted demand for goods like motor vehicles. Monthly inflation remains moderate.
On Thursday, data shows weekly continuing jobless claims reach their highest since November 2021. Gross domestic product for the first quarter reflects a sharp reduction in consumer spending.
Federal Reserve Chair Jerome Powell tells Congress that rate cuts are likely if inflation does not rise over the summer. Traders see his comments as a signal the central bank could ease policy soon.
Reports say U.S. President Donald Trump may appoint Powell’s replacement ahead of the May 2026 term end. Markets expect the new chair to take a more dovish stance, which adds pressure to the dollar.
The dollar index slips 0.15% to 97.23. The euro rises 0.21% to $1.1723 and briefly touches $1.1754, its highest since September 2021. The euro gains support from inflation data in France and Spain.
Traders now price in 65 basis points of Fed rate cuts by the end of the year, up from 46 basis points last week. A lower U.S. interest rate makes the dollar less attractive compared to other currencies.
Concerns about the long-term position of the dollar also persist. Foreign investors reassess U.S. policy actions, including sanctions under President Biden, that increased the risk of holding U.S. assets.
Against the Japanese yen, the dollar strengthens 0.19% to 144.65. Japan’s core inflation in Tokyo slows in June but stays above the 2% target, supporting the case for further rate hikes.
Bitcoin drops 1.13% to $106,594.
