US dollar extends losses to multiyear lows on weak data, Fed speculation

Key points

• EUR/USD surges to 4-year high above 1.1700 while USD/CHF closes under 0.8000 for first time since 2011, marking historic dollar weakness across major pairs
• Fed speculation intensifies as Trump prepares new chair nomination with markets pricing 90% odds of two rate cuts by year-end amid political interference fears
• Weak Q1 GDP revised down to -0.5% contraction with consumer spending at weakest pace since 2023, raising sustainability questions about US economic outperformance
• Europe emerges as primary beneficiary through monetary policy stability, economic resilience, and structural advantages while US grapples with uncertainty

Historic Currency Moves Signal Dollar Distress

'Renewed dollar selling this week' is not a surprising headline in 2025, but this week in particular signals exceptional weakness as several US dollar pairs breached key price levels. EUR/USD rose above 1.1750 this morning — up 2.2% on the week, over 12% year-to-date, and marking the highest level since 2021. Meanwhile, USD/CHF closed below 0.8000 yesterday with comparable declines over both periods, marking its lowest daily close since 2011. This broad-based dollar selloff represents more than typical currency volatility—it signals a fundamental shift in global confidence. Now at historic extremes, it may be time to question if the current landscape presents reasons for a whole new trading range for dollar pairs.

EUR/USD price chart

No Safe Haven Bid Despite Geopolitical Turmoil

Perhaps most telling about the dollar's current predicament is its failure to attract safe-haven flows despite the recent Middle East tensions. Typically, geopolitical uncertainty drives investors toward dollar assets, but the current Israel-Iran conflict and its resolution with US involvement have failed to provide any meaningful support for the greenback.

Fear that the conflict between Israel and Iran could escalate into a broader regional conflict bolstered Swiss franc and Japanese yen, leaving the dollar behind. Even as this brief war appears to be resolved, no pressure has been lifted in the US dollar's favor in either market (USD/CHF or USD/JPY). This departure from historical patterns suggests deeper structural concerns about US economic management and policy credibility are overriding traditional flight-to-safety dynamics.

Fed Speculation Takes Center Stage

The week's focus has shifted dramatically to Federal Reserve speculation, particularly around President Trump's anticipated nomination of a new Fed chair. Trump said a decision on the next Federal Reserve chair will be coming out soon, even though Powell's term is not over until May of next year, in attempt to stifle Powell's influence on markets and increase pressure on accelerated rate cuts.

This political pressure is creating unprecedented uncertainty about Fed independence. Any choice deemed as being under Trump's influence should alarm Wall Street, given the broad sentiment that an independent Fed is critical to its ability to function properly. While equity markets appear to be content with the potential of lower rates, dollar markets are much more concerned about potential political interference in monetary policy decisions.

This speculation has already shifted futures markets, with traders now pricing in a 90% chance of at least two rate cuts of 25 basis points each by December 2025. Among specific predictions for the total number of cuts by year-end, three rate cuts emerges as the most likely scenario with a 45% probability. This aggressive easing expectation, driven partly by political pressure rather than economic fundamentals, is weighing heavily on dollar sentiment.

Economic Data Compounds Dollar Woes

On top of Fed speculation, US data this week has not given investors any reason to be bullish on the US economy. Final Q1 GDP readings released Thursday revealed the economy contracted faster than previously thought, decreasing at a downwardly revised 0.5% annualized rate. This morning, consumer insights stole headlines from PCE inflation with softer-than-expected personal income and personal spending, both decreasing month-over-month. Dollar weakness spiked on these releases, as sentiment dwindles ahead of employment data next week.

Europe: The Primary Beneficiary

Europe has emerged as the unexpected winner in this currency realignment as EUR, GBP and CHF emerge as this week's outperformers in the FX space. Europe's relative strength reflects a combination of factors suggesting EU growth may finally be catching up to US pace while offering greater stability. European monetary policy could soon be more predictable and independent compared to US political pressure on the Fed, while European economies have shown surprising resilience and adaptability to changing global trade conditions, bolstered by optimism around potential Ukraine peace developments and increased government spending commitments from major economies like Germany.

What Could Save the Dollar?

Policy clarity and resolution about the Fed's future could provide significant dollar support. If the Trump administration establishes clear, consistent economic policies while maintaining Fed independence, confidence could return. Additionally, any concrete resolution to the continuously up-in-the-air trade negotiations that reduces economic uncertainty might trigger a dollar recovery.

Improving economic data represents another avenue for dollar strength. Should upcoming employment reports, consumer spending data, or GDP revisions show resilience, it could challenge the current negative narrative. Strong corporate earnings or evidence of tariff policy success might also provide support.

Market Implications and Outlook

The current dollar weakness represents more than a cyclical adjustment—it reflects fundamental questions about US economic leadership and policy credibility. Economists worry that the recent drop in the dollar is so dramatic that it reflects a loss of confidence in the United States.

For currency markets, the key question is whether this represents a temporary adjustment to policy uncertainty or the beginning of a more sustained shift in global monetary relationships. The combination of weak economic data, political pressure on the Fed, and loss of safe-haven status creates a unique set of challenges for the dollar.

The breadth of dollar weakness—spanning from the euro to the Swiss franc—suggests systemic rather than bilateral issues. Until either economic data improves significantly or policy uncertainty diminishes, the dollar may continue to face headwinds across major currency pairs.

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