Fed Speculations: Dollar Dips Amid Rate Cut Bets and Legal Strife

The dollar weakened against major currencies amid fresh bets on a Federal Reserve rate cut and legal tension between President Trump and Fed Governor Lisa Cook. Despite modest economic growth data, Trump's push for influence on monetary policy weighed heavily, impacting currency strength and market perceptions.

The dollar slid against both the euro and yen on Thursday as investors speculated on a potential interest rate cut by the Federal Reserve next month. This follows signals from New York Fed chief John Williams indicating such a move might be on the cards. Concurrently, President Donald Trump's initiatives to exert more control over monetary policy have renewed pressure on the U.S. currency, highlighted by his recent effort to terminate Fed Governor Lisa Cook, now embroiled in a lawsuit against Trump.

While jobless claims and GDP growth data offered some positive tidings on Thursday, it wasn't enough to offset the broader uncertainties surrounding Fed independence. Uto Shinohara, a senior strategist at Mesirow Currency Management, noted that escalating tariffs in India and potential National Guard deployments in U.S. cities are drawing global scrutiny, further affecting market sentiments. Despite a potentially unstable French government at the hands of a confidence vote next month, the euro gained 0.38% to reach $1.1682, while the pound rose 0.19% to $1.3525.

Top traders are assigning an 87.3% probability to a quarter-point rate reduction next month, hinging their bets on upcoming inflation and payroll data. Meanwhile, Trump's efforts to install dovish-leaning candidates in the central bank's decision-making apparatus have led to declining short-term yields. In international dealings, the dollar saw its lowest position against China's offshore yuan since November, indicating significant currency movement amid ongoing geopolitical negotiations.

(With inputs from agencies.)