**U.S. Dollar Weakens Amid Fed Policy Speculation: In-Depth Analysis of Major Currency Pairs**
*Original article by James Hyerczyk, FXEmpire. Extended and revised for educational and analytical purposes.*
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The U.S. dollar faced renewed selling pressure in the latest forex trading sessions as investors responded to remarks from Scott Bessent, a key policy advisor and former chief investment officer of Soros Fund Management. Bessent publicly suggested that the Federal Reserve should begin reducing interest rates immediately in response to economic indicators pointing toward a decelerating U.S. economy.
These comments, coupled with data suggesting a gradual cooling of inflation and moderating labor market activity, have bolstered market speculation that the Fed may pivot toward rate cuts sooner than previously expected. This shift in sentiment is driving significant movement across major currency pairs, including EUR/USD, GBP/USD, USD/CAD, and USD/JPY.
Below is an extended analysis of the dollar’s retreat and how global currency markets are reacting.
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## Key Factors Behind the U.S. Dollar’s Retreat
Several interconnected financial and macroeconomic forces are influencing the current weakness of the U.S. dollar. These include:
– **Remarks by Scott Bessent**: Bessent argued that the Fed risks triggering a broader economic downturn if it maintains high interest rates. His call for urgent monetary easing echoes views held by a growing number of market participants.
– **Moderating Inflation**: Recent data shows inflation is trending downward, albeit slowly, increasing the rationale for the Fed to consider pausing or even reversing rate hikes.
– **Labor Market Cooling**: Job growth, while still positive, has slowed relative to early 2023 levels. Rising unemployment claims suggest a potential inflection point in labor dynamics.
– **Yield Curve Inversion**: Longer-term Treasury yields remain lower than short-term yields, typically a harbinger of recession and a concern for investors.
– **Market Sentiment and Risk Appetite**: With equity markets relatively stable and energy prices under control, investors are showing a heavier appetite for risk, favoring higher-yielding or emerging market currencies in place of the safe haven dollar.
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## EUR/USD: Euro Gains Momentum Amid Dollar Losses
The EUR/USD pair has strengthened in response to broad USD weakness. As of the latest trading session, the pair tested the upper end of its recent range near 1.0900, rising for three consecutive days.
### Key Drivers:
– **ECB Policy Divergence**: European Central Bank officials remain cautious, but have not signaled immediate rate cuts, providing tentative support to the euro.
– **Eurozone Economic Resilience**: Some Eurozone countries, particularly in the service and manufacturing sectors, have shown modest signs of stability, boosting confidence in the euro.
– **Technical Outlook**:
– The pair broke above the 20-day and 50-day moving averages, indicating renewed bullish momentum.
– Resistance is currently seen near 1.0950, while initial support lies at 1.0830 and 1.0780 levels.
### EUR/USD Forecast:
As long as U.S. dollar sentiment remains bearish, EUR/USD could extend its recovery towards 1.1000. However, continued strength will depend on incoming inflation data from both economies and policy guidance from the ECB and Fed.
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## GBP/USD: Sterling Remains Buoyant Despite Domestic Uncertainty
The British pound has risen against the dollar, with GBP/USD moving closer to 1.2800, largely due to dollar weakness rather than inherent strength in the UK economy.
### Contributing Factors:
– **Bank of England Holds Steady**: While UK inflation remains high, the Bank of England is practicing caution before enacting rate cuts, maintaining a balanced but hawkish tone.
– **UK Inflation Still Stubborn**: At the consumer level, headline inflation in the UK continues to hover above the BoE’s target, offering some support to the pound despite slowing
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