Dollar Weakens Against Euro and Swiss Franc as Markets Eye Fed Rate Cut

The U.S. dollar slipped against the euro and Swiss franc on Friday, setting it on track for a nearly 2% decline in August, as traders positioned themselves for an expected interest rate cut by the Federal Reserve next month.

The greenback initially firmed after U.S. inflation data came in line with expectations but later lost ground, extending a three-day losing streak.

According to the Commerce Department, the personal consumption expenditures (PCE) price index—closely watched by the Fed—rose 0.2% in July after a 0.3% increase in June. The figures reinforced expectations that the Fed will move ahead with a widely anticipated rate cut at its September 16–17 policy meeting.

The CME FedWatch tool showed markets pricing in an 87% chance of a rate cut, up from 63% a month ago.

The dollar index, which tracks the U.S. currency against a basket of major peers, slipped 0.09% in afternoon trade to 97.803.

“Investors are waiting for the next U.S. labor market report on September 5, so FX markets remain rangebound,” said Dan Tobon, head of G10 FX strategy at Citi.

Uto Shinohara, senior investment strategist at Meesiro Currency Management, noted that weak consumer sentiment continues to weigh on markets already balancing portfolio rebalancing and hedging at the end of August, following earlier equity gains.

Adding to the pressure, President Donald Trump has ramped up efforts to exert influence over monetary policy, including an attempt this week to remove Federal Reserve Governor Lisa Cook.

A federal judge said Friday she would expedite hearings on Cook’s request to temporarily block Trump’s dismissal while her lawsuit—which argues that there is no legal basis for her removal—proceeds.

“Market volatility remains in focus, and media coverage around Governor Cook’s contested dismissal has only amplified it,” Shinohara said.

Trump, a frequent critic of Fed Chair Jerome Powell, has long pressured the central bank for deeper rate cuts and is seeking to reshape its leadership.

Fed Governor Christopher Waller, rumored to be Trump’s preferred successor to Powell, said Thursday he wants to begin rate cuts next month and expects further reductions to bring policy rates back to a neutral level.

“Interestingly, FX market reaction to Fed policy signals has been relatively muted,” Tobon added. “This could reflect thin summer liquidity—or simply markets’ assumption that any Fed move will lead to the same rate-cut cycle. Ultimately, it all comes down to the data.”

European Inflation

An ECB survey released Friday showed that eurozone consumers kept their inflation expectations at or above the central bank’s 2% target in July.

Separate data revealed French consumer prices rose slightly less than expected in August, while Spain’s EU-harmonized annual inflation rate held steady at 2.7%.

The euro edged 0.11% higher to $1.1696, while sterling held steady at $1.3502. Both currencies have gained more than 2% in August.

Against the yen, the dollar rose 0.02% to 146.985 but was still down 2.5% for the month. The greenback also fell 0.26% to 0.7997 against the Swiss franc, extending its monthly decline to 1.3%.

Elsewhere, the New Zealand dollar firmed slightly after Reserve Bank of New Zealand chair Neil Quigley announced his resignation, citing the bank’s handling of an abrupt leadership change earlier this year.

China’s yuan climbed to a 10-month high against the dollar, supported by steady central bank fixings and strong domestic equity markets. By contrast, the Indian rupee weakened to a record low, pressured by concerns over the economic impact of steep U.S. tariffs on Indian imports.