Global Currency Markets React to Anticipated Fed Rate Cuts

The dollar fell against major currencies amid expectations of a U.S. Federal Reserve rate cut. Market instability increased due to political interference attempts by President Trump and the economic impact of U.S. tariffs. The Fed's policy actions and global inflation trends play a crucial role in currency value shifts.

The dollar depreciated against the euro and Swiss franc on Friday, marking a 2% drop in August as traders anticipate a U.S. interest rate cut by the Federal Reserve next month. Initially, the dollar strengthened post-U.S. inflation data but later relinquished its gains.

The U.S. Commerce Department revealed that the PCE Price Index rose 0.2% last month, keeping expectations intact for a rate cut during the Fed's September 16-17 meeting. Money markets show an 87% expectation of this outcome, up dramatically from the 63% likelihood a month ago, according to CME's FedWatch tool.

Adding to market volatility, President Trump's attempts to influence monetary policy and the controversial move against Fed Governor Lisa Cook weigh on the dollar. Furthermore, Fed Governor Christopher Waller has indicated a desire to lower rates, while ECB readings show stable inflation expectations, affecting the euro's value against the dollar.

(With inputs from agencies.)