The US dollar weakened and Treasury yields edged lower on Wednesday as market expectations for an earlier-than-expected rate cut gained momentum. The moves followed a report that former President Donald Trump is considering announcing a replacement for Federal Reserve Chair Jerome Powell as early as September or October.
According to the Wall Street Journal, the potential early announcement would be unusual and could effectively establish a “shadow Fed chair”, influencing monetary policy expectations ahead of the formal transition.
A Bloomberg dollar gauge dropped 0.3%, touching its lowest level since April 2022, as the greenback slipped against major currencies including the Japanese yen and Taiwan’s dollar.
In the bond market, Treasury yields fell across the curve, with 10-year yields dropping two basis points to 4.27%.
Analysts say the market is pricing in a dovish shift in monetary policy under a potential Trump-appointed Fed chair.
“Trump has been talking about lower rates so he will pick someone who aligns with his views,” said Mahjabeen Zaman, Head of FX Research at ANZ Banking Group. “Whoever he announces will likely be dovish and will likely give further downside impulse to the dollar.”
The speculation has added to expectations that the Federal Reserve could cut interest rates sooner than previously anticipated, further weakening the dollar and supporting risk assets.
