Dollar close to multi-year lows as investors see mounting risks

The dollar hovered near multi-year lows on Thursday as concerns over US economic policy and geopolitical risks continued to weigh on the currency, despite supportive comments from Washington and Europe that helped stabilise markets after an earlier rout.
The greenback had slumped to a four-year low earlier this week after President Donald Trump appeared to downplay the currency’s weakness. It later found some footing after US Treasury Secretary Scott Bessent reiterated that Washington maintains a strong-dollar policy.
On the monetary policy front, the Federal Reserve struck a more measured tone, describing inflation as “somewhat elevated” and the labour market as stabilising. Investors interpreted the comments as a signal that interest rates could remain on hold for longer.
Federal Reserve Chair Jerome Powell indicated there would be a prolonged wait before any further rate cuts, with some economists arguing the US economy shows little need for additional easing.
“While the outlook remains uncertain, particularly given the appointment of a new Fed Chair in coming months, our baseline remains that the rate-cutting cycle is complete,” said David Doyle, head of economics at Macquarie Group, adding that the next policy move could be a hike later in 2026.
The euro, which briefly broke above the $1.20 level as the dollar slid, eased back to around $1.1980 after European Central Bank officials raised concerns about the deflationary impact of a rapidly appreciating currency. ECB board member Isabel Schnabel said policy was in a “good place,” with rates expected to stay unchanged for an extended period.
Despite a pause in heavy selling, the dollar remained under pressure against major peers. It slipped 0.33% against the Swiss franc to 0.766, near an 11-year low, while sterling hovered close to a 4½-year high at $1.3844.
The Australian dollar climbed to a three-year high, supported by expectations of a possible rate hike as early as next week, while the yen found some relief, rising modestly amid speculation of coordinated action between US and Japanese authorities.
Already down about 2% this year, the dollar has been weighed down by investor unease over erratic US policymaking, attacks on the Fed’s independence and signals Washington could intervene to weaken the currency.
“Loss of independence is far and away the biggest risk to ongoing dollar hegemony,” said NAB’s Ray Attrill.
Against a basket of currencies, the dollar stood near 96.06, not far from Tuesday’s four-year low.— Reuters