The dollar weakened amid rising bets on a U.S. interest-rate cut as expectations grew that the next Federal Reserve chairman would likely ease monetary policy earlier than currently anticipated.

A Bloomberg greenback gauge fell to a three-year low after the Wall Street Journal reported that President Donald Trump may announce a replacement for current Chairman Jerome Powell in September or October. Traders saw the news as a signal that an early rate cut is becoming more likely, given that Trump has repeatedly pressed Powell to lower borrowing costs.

"A Trump nomination would increase the pressure, to the point where we might have a shadow Fed chair before Powell steps down in May next year," said Rodrigo Catril, a strategist at National Australia Bank Ltd. in Sydney. "We think it's fair to suggest that the pressure on Powell to cut rates will increase, and that adds selling pressure to the dollar." The latest headlines about Powell add another element of risk to the dollar and U.S. Treasury bonds, both of which are already under pressure from uncertainty about the impact of tariffs and a ballooning fiscal deficit.

The Bloomberg dollar gauge fell as much as 0.2% to its lowest since April 2022. It has now fallen more than 8% this year. Traders have raised bets on a Fed rate cut in recent days, now pricing in easing of 66 basis points by the end of the year compared with 51 basis points at the end of last week, based on overnight index swaps. "This is definitely weighing more on the dollar," Ignatius Pang, head of foreign-exchange sales and execution for Asia at Union Bancaire Privee, said of the news. The episode of U.S. currency strength is "an opportunity to really look at diversifying" dollar holdings, he said.

Pollutants to replace Powell include Fed Governor Kevin Warsh and National Economic Council director Kevin Hassett, the Wall Street Journal reported, citing people familiar with the matter. Trump said Wednesday he has three or four people in mind to replace Powell, whose term as chairman ends in May 2026.

The president has been critical of the Fed's stance on keeping interest rates steady, arguing for cuts and saying the central bank is keeping borrowing costs for the U.S. government high. "That effectively makes Powell less influential because everyone is turning their attention to the new chairman," said Matthew Haupt, a portfolio manager at Wilson Asset Management in Sydney. "So it's a dovish tilt." (alg)

Source: Bloomberg