The increasing expectation of interest rate cuts has driven the US dollar to continue weakening, with a noticeable shift in market expectations

The US dollar remains unable to rebound after hitting a five-week low recently, instead continuing to come under pressure. Behind this phenomenon is the market’s reassessment of the prospects for rate cuts. As key economic data is released and policy signals are communicated, investors’ attitudes toward the Federal Reserve’s future policy direction have changed significantly, and expectations for rate cuts are beginning to heat up.

Weakening Economic Data Provides Strong Support for Rate Cut Expectations

A series of recent US economic indicators have shown clear signs of weakness. The ADP private sector employment report underperformed expectations, indicating that the growth rate of the US labor market may be slowing down. Meanwhile, ISM services data also sent positive signals — price pressures have noticeably eased, directly suggesting that inflationary pressures may be receding. The combined signals from these two reports have significantly increased the market’s assessment of the likelihood of future rate cuts.

The US dollar is in trouble under multiple pressures

The direct reason for the dollar’s weakness is the rising expectation of rate cuts. When expectations for rate cuts heat up, the support provided by high interest rates to the dollar diminishes. The outlook for US Treasury yields has become bleak, reducing their attractiveness, which puts pressure on the dollar as a high-yield asset. Additionally, political signals are reinforcing this expectation — statements from Trump regarding the next Federal Reserve Chair further strengthen market expectations of a policy shift. The accumulation of these factors makes dollar weakness inevitable.

Market pricing clearly indicates that rate cuts are imminent

According to the latest data from LSEG, the market has already priced in a December rate cut by the Federal Reserve: an 85% probability indicates that a rate cut will become a reality. This pricing level is far higher than previous expectations, fully reflecting the strong consensus among market participants on rate cuts. When market expectations are so aligned, a rate cut policy is almost a certainty.

The dollar’s weakening is a true reflection of this change in expectations. When expectations for rate cuts rise and market consensus shifts, the dollar is inevitably under pressure. This process not only reflects changes in economic fundamentals but also demonstrates a deep reassessment of policy prospects.