The US Dollar Index fell 0.28% to 98.55, as the euro gained to $1.1714. The Japanese yen and British pound also strengthened against the greenback, reflecting softer demand for the US currency, News.az reports.
Fed leadership outlook weighs on dollar
The move followed a decision by the US Justice Department to close its investigation into Jerome Powell, removing a key obstacle to leadership changes at the central bank.
Jeanine Pirro said the inquiry into renovation costs at the Federal Reserve would instead be handled by its internal watchdog, the Office of Inspector General.
The development is seen as clearing the path for Kevin Warsh, nominated by President Donald Trump to lead the Fed.
Market participants interpreted the potential shift in leadership as signalling a more accommodative policy stance.
“The market’s reading this as a little bit dovish,” said Noah Buffam of CIBC Capital Markets.
Warsh is viewed as favouring alternative inflation measures that currently sit below core readings, potentially opening the door to more aggressive interest rate cuts than under Mr Powell.
Traders increased their expectations for easing, with futures markets pricing a 38% probability of a rate cut by the end of the year, up from 23% earlier in the session.
Geopolitics adds to pressure
The dollar also came under pressure from signs of renewed diplomatic activity linked to the conflict involving Iran.
Iran’s foreign minister Abbas Araghchi was expected in Islamabad to discuss proposals aimed at restarting talks with the United States, although reports suggested no direct meeting with US negotiators had been scheduled.
Washington is planning to send envoys, including Steve Witkoff and Jared Kushner, to engage in discussions in the near future.
Currency markets have been pulled in opposing directions by the conflict, with optimism over a potential agreement supporting risk appetite, while fears of prolonged disruption to oil supplies have periodically boosted demand for the dollar as a safe-haven asset.
Markets remain cautious
Despite the latest moves, trading activity has remained relatively subdued as investors await clearer signals.
“Right now you really can’t have anything on the table because you don’t know where this is going,” said Lou Brien of DRW Trading.
Analysts say any sustained market movement is likely to depend on tangible developments, particularly in energy markets.
A prolonged disruption to crude oil supplies could have broader economic consequences, especially for Europe and Asia, potentially driving future currency volatility.
Focus shifts to central banks
Attention is now turning to a busy week of monetary policy decisions from major central banks, including the Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan.
The Fed is widely expected to hold rates steady in the near term, balancing resilient economic data against the risk of renewed inflation driven by higher energy costs.
In Europe, policymakers are also treading cautiously, with expectations building for a possible rate increase in the coming months as officials seek to counter the impact of energy price shocks.
Meanwhile, the Bank of Japan is expected to maintain its current stance, despite ongoing uncertainty around inflation and economic growth.
Currency moves
Among major currencies, the Japanese yen strengthened to 159.4 per dollar, while sterling rose to $1.3523.
In cryptocurrency markets, Bitcoin slipped 0.47% to $77,558.
Outlook
With geopolitical risks unresolved and central bank decisions looming, analysts expect currency markets to remain range-bound in the near term.
Future direction is likely to hinge on both the trajectory of the Iran-related tensions and the policy signals delivered by global monetary authorities in the days ahead.
