The U.S. dollar slipped on Thursday, pressured by growing expectations that the Federal Reserve will continue cutting interest rates this year, while signs of political stability in France lifted the euro to its strongest level in a week.
At 04:45 ET (08:45 GMT), the U.S. Dollar Index — which tracks the greenback against six major currencies — fell 0.2% to 98.342, setting up a 0.3% weekly decline.
Markets Look Ahead to More Fed Cuts
Investor sentiment has tilted further toward a dovish Fed stance after a run of soft economic data and cautious comments from Chair Jerome Powell. Powell noted earlier this week that “the downside risks to employment have risen,” underscoring mounting concerns around the labor market.
The Fed’s Beige Book also painted a picture of a slowing economy, reporting only modest activity and lingering cost pressures over the past two months.
“Last night’s release of the Fed’s Beige Book suggests the Fed will have enough evidence to cut rates at the end of the month – even if official data releases remain suspended because of the government shutdown,” analysts at ING said.
Traders now expect a 25-basis-point cut at the Fed’s October 28–29 policy meeting and another in December, with several more reductions anticipated in 2026, according to LSEG data.
The Fed last trimmed rates in September for the first time since December, lowering the target range for the federal funds rate to 4.00%–4.25%.
Markets are also monitoring the trade tensions between Washington and Beijing ahead of the planned meeting between Presidents Donald Trump and Xi Jinping at the APEC summit in South Korea later this month.
“The question for financial markets is whether China’s proposed export controls on rare earths are merely part of a bargaining ploy to achieve greater concessions from the U.S. Or really whether it is a threat which would stick and greatly disrupt global supply chains, given rare earths’ role in products like semiconductors,” ING added.
Euro Gains as Political Risks Ease in France
The euro edged higher, with EUR/USD climbing 0.1% to 1.1659, its highest in a week, after Prime Minister Sébastien Lecornu appeared poised to survive two no-confidence votes later Thursday by agreeing to postpone pension reform — a key concession to the Socialist Party.
“The euro and French government bonds see this as good news for the short term, although for the longer term the reversal of pension reforms merely makes the job of fiscal consolidation that much harder,” ING said.
“It’s hard to see EUR/USD breaking above the 1.1685/1730 area in the near term. However, the longer EUR/USD can consolidate here, the closer it comes to the seasonally bullish period of November and especially December. We retain a 1.20 year-end call.”
Sterling Rises as U.K. Growth Returns
The pound also strengthened, with GBP/USD up 0.3% at 1.3436 after data from the Office for National Statistics showed the U.K. economy expanded 0.1% in August, rebounding slightly after a flat July reading.
Yen Strengthens on Political Uncertainty
USD/JPY slipped to 151.06 as investors assessed political uncertainty in Japan. Sanae Takaichi, who recently became leader of the Liberal Democratic Party (Japan), faces headwinds after coalition partner Komeito abruptly exited the alliance, while opposition parties weigh their own candidate for prime minister.
USD/CNY also moved slightly lower to 7.1253, with the yuan stabilizing thanks to strong midpoint fixes by the People’s Bank of China. Tensions remain elevated after Trump recently threatened to impose 100% tariffs on Chinese goods.
Aussie Dips on Weak Jobs Report
The Australian dollar edged down 0.1% to 0.6503 after disappointing employment data for September. Job growth came in below expectations and the unemployment rate unexpectedly rose to its highest level in four years. A downward revision to August figures added to concerns.
The weaker labor data increased expectations that the Reserve Bank of Australia could cut rates in early November to support the labor market.
This content is for informational purposes only and does not constitute financial, investment, or other professional advice. It should not be considered a recommendation to buy or sell any securities or financial instruments. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
Some portions of this content may have been generated or assisted by artificial intelligence (AI) tools and been reviewed for accuracy and quality by our editorial team.