The U.S. dollar fell on Monday, extending its recent losses and hovering near multi-year lows as optimism over trade deals and growing expectations of Federal Reserve interest rate cuts continued to weigh on the greenback.
As of 04:10 ET (08:10 GMT), the U.S. Dollar Index—which measures the dollar against six major currencies—dropped 0.2% to 96.810, close to levels not seen since March 2022. The index is now on pace for a 2.6% decline in June.
Trade Stability and Rate Cut Expectations Pressure Dollar
The dollar’s decline is being driven by a shift in sentiment, as recent developments suggest a more stable global trade environment. The White House’s deal with China last week and Canada’s decision to scrap its digital services tax—which had stalled talks—have both boosted hopes of a return to smoother trade relations.
Adding to this momentum, Bloomberg reported that European Commission President Ursula von der Leyen expressed optimism during a closed-door summit, saying she believes a U.S.-EU trade agreement could be finalized before the July 9 tariff deadline.
Removing the threat of inflationary tariffs could give the Federal Reserve additional room to ease monetary policy. Last week, Fed Chair Jerome Powell indicated that interest rate cuts were likely if inflation remained tame over the summer, especially in the absence of new tariff-related shocks.
Market bets on a quarter-point rate cut by September have surged to 91.5%, up from around 83% the previous week, according to CME Group’s FedWatch Tool. The Fed’s next policy meeting is in July, with no scheduled meeting in August.
Investors are also monitoring the progress of President Trump’s sweeping tax-and-spending bill, currently in the Senate. The Congressional Budget Office estimates it could add $3.3 trillion to the national debt over the next decade.
Euro Edges Higher Despite Mixed Data
The euro continued to benefit from dollar weakness, with EUR/USD up 0.1% to 1.1730, just shy of Friday’s 1.1754, its highest level since September 2021.
Despite disappointing domestic data—German retail sales unexpectedly fell 1.6% in May—the euro’s gains have been largely driven by external factors, particularly dollar softness.
Inflation data from Germany and Italy this week may suggest a slight uptick in eurozone headline CPI, but the broader euro rally remains fragile.
“Markets are currently pricing the first ECB rate cut for December, but risks are tilted toward a more dovish repricing,” said analysts at ING.
Pound Eases Despite Strong UK Growth
GBP/USD slipped 0.1% to 1.3705, just below last week’s high of 1.3770, a level not seen since October 2021.
The decline came despite confirmation that the UK economy grew 0.7% in Q1 2025—its fastest quarterly expansion in a year. However, the Bank of England has projected slower growth of just 0.25% in Q2, tempering optimism.
Yuan Strengthens on Trade Hopes and PMI Boost
In Asia, USD/JPY fell 0.4% to 144.07, as Japan’s industrial production rose in May but missed expectations.
Meanwhile, USD/CNY dipped 0.1% to 7.1654, bringing the Chinese yuan close to its strongest level since November.
Data from China showed manufacturing PMI contracted at a slightly slower rate than expected in June, while non-manufacturing activity improved. The modest rebound was supported by stronger overseas orders, following the U.S.-China tariff rollback in May.
Still, June marked the third straight month of contraction for China’s manufacturing sector, reflecting ongoing pressure from high U.S. tariffs and sluggish domestic demand.
