Dollar Slumps to Near Four-Year Low Against Euro Amid Trump Spending Concerns, Fed Pressure

The US dollar slid to its weakest level against the euro since September 2021 on Tuesday, weighed down by mounting fiscal concerns surrounding President Donald Trump’s proposed spending bill and growing expectations of a dovish shift from the Federal Reserve.

The euro climbed to a near four-year high of $1.1808, boosted by the dollar’s decline and signs of strength in the European economy. The single currency posted a remarkable 13.8% gain in the first half of the year, its strongest-ever January-to-June performance, according to data from LSEG.

The greenback’s weakness follows rising unease over the Trump administration’s $3.3 trillion tax-cut and spending package, which faces resistance in the Senate amid concerns over its long-term impact on the national debt. The dollar index, which measures the US currency against a basket of six major peers, dropped to 96.612—its lowest level since February 2022.

“There are many reasons not to like the USD,” said Moh Siong Sim, currency strategist at Bank of Singapore. “Some are structural, like erratic trade policies and fiscal risks. But the risk of a more dovish Federal Reserve eroding USD’s yield advantage is the latest source of weakness.”

In global markets, the British pound remained steady at $1.3739, close to a three-and-a-half-year high, while the Japanese yen strengthened to 143.77 per dollar. The yen has gained 9% this year, marking its strongest first-half performance since 2016.

Investor focus is also turning to the Federal Reserve’s next moves. Traders are now pricing in roughly 67 basis points of rate cuts this year. Goldman Sachs revised its forecast this week to three quarter-point cuts in 2025, up from just one, citing weaker labour market indicators and lower-than-expected tariff impacts.

President Trump has publicly pushed the Fed to slash interest rates further, recently sending Chair Jerome Powell a handwritten list comparing global rates and urging a US policy range closer to Japan’s 0.5% and Denmark’s 1.75%. His pressure campaign has raised concerns over central bank independence and its ability to respond credibly to economic data.

Attention will turn to comments from Powell on Tuesday, when he joins global central bank leaders at the European Central Bank’s forum in Sintra, Portugal. Meanwhile, markets await Thursday’s US nonfarm payrolls report, which is expected to show a slowdown in job creation, with 110,000 new jobs projected in June and a slight uptick in the unemployment rate to 4.3%.

Uncertainty over upcoming trade deals, particularly with Japan, is further unsettling markets ahead of the July 9 deadline for Trump’s threatened new tariffs. Treasury Secretary Scott Bessent warned this week that several countries could face sharply increased levies if agreements are not reached soon.