Dollar Slides to Worst Week Since July as Fed Signals More Cuts

​Dollar Loses Its Grip
The U.S. dollar is on track for its biggest weekly drop since July after a wave of dovish signals from the Federal Reserve and growing concern over the health of regional banks. The Bloomberg Dollar Spot Index has slipped 0.5% this week, extending a four-day decline as traders ramp up bets that the Fed will keep cutting interest rates to support the economy.

Treasury two-year yields fell to a six-week low, and markets are now pricing in 53 basis points of rate cuts by year-end — up from 46 earlier this week.

Fed Turns Softer as Shutdown Drags On
Despite a three-week U.S. government shutdown and limited fresh data, investors are betting the Fed will press ahead with easing. Fed Governor Christopher Waller said policymakers could continue trimming rates in quarter-point steps to help a cooling labor market, while Governor Stephen Miran suggested a larger half-point cut might be warranted this month.

Economists at Morgan Stanley, led by Michael Gapen, echoed that view, expecting another 25-basis-point cut at the Fed’s October meeting.

Banking Jitters Add Pressure
The dollar’s slump also reflects renewed stress among regional banks, where tighter lending standards are sparking fears of broader financial strain. Shares of smaller lenders tumbled this week, adding to concerns that the sector could weigh on credit growth just as the economy shows signs of fatigue.

At the same time, easing political tensions in Japan and France and falling oil prices have softened demand for the greenback as a global safe haven.

Traders Stay Cautious
Market strategists at ING Bank said that with “so many crosscurrents hitting the dollar at once,” it’s difficult to pinpoint a bottom. They cited dovish Fed expectations, fading geopolitical risk, and U.S.–China trade uncertainty as factors dragging sentiment lower.

​Despite short-term bearishness, options data show some investors still expect the dollar to stabilize before year-end. For now, though, traders are keeping positions short-term and reacting to headlines one by one — a sign that confidence in the greenback’s rebound remains fragile.