The US dollar resumed its downward trajectory in European trading on Thursday, shedding early-week gains as persistent uncertainties over US-China trade relations pressured the greenback toward three-month lows.
The dollar index—which tracks the currency against a basket of major peers—fell 0.55% to 99.25, reversing two consecutive days of gains and retreating from a session high of 99.84. The move comes after a 0.7% climb on Wednesday, buoyed by upbeat comments from President Joe Biden on China and a steady tone from Federal Reserve Chair Jerome Powell.
Trade Jitters Cloud Market Sentiment
Investor sentiment remains fragile as conflicting signals emerge from Washington regarding the trajectory of trade talks with Beijing. While President Biden reaffirmed the administration’s aim to reach a “fair deal” with China, he simultaneously reiterated the possibility of imposing additional tariffs if negotiations falter.
US Treasury Secretary Scott Bessent further unsettled markets by clarifying that the US has no intention of unilaterally slashing tariffs, stating that reductions would not exceed 100% and that no concrete timeline exists for further dialogue. He suggested a full trade rebalancing could take up to three years.
Analysts note a growing market perception that the White House is becoming increasingly responsive to equity market performance—evident in its decisions to delay tariff escalation and abandon plans to replace Fed Chair Powell.
Fed Independence and Rate Outlook
Monetary policy also remains in focus. Chicago Fed President Austin Goolsbey expressed concern over potential threats to the Federal Reserve’s independence, warning against a politicized environment where rate-setting decisions could be influenced by the executive branch.
Rate expectations are shifting. According to CME’s FedWatch Tool, traders see just a 7% chance of a rate cut in May, but odds climb to 62% for a 25-basis-point reduction in June, as markets weigh the Fed’s response to cooling inflation and heightened geopolitical risks.
The greenback’s near-term trajectory remains tied to trade developments and the Fed’s balancing act between growth risks and inflation control.
