US Dollar Weakens, Dovish Fed Expectations Outweigh Positive Sentiment from Oil Prices
The exchange rate of the US dollar fell as the market became increasingly confident that the Federal Reserve would take a more dovish stance (soft on interest rates), despite rising global oil prices. Rising oil prices typically drive inflation, but economic slowdown and the latest CPI data have dampened expectations for further rate hikes. Market participants are now projecting the possibility of rate cuts starting in September 2025, which has weakened the appeal of the dollar.
Impact on the market: the weakening dollar drives up prices of risk assets like stocks and crypto, particularly Bitcoin and Ethereum, as investors seek a hedge against fiat currencies. On the other hand, energy sector stocks received support from the surge in oil prices. However, if the Fed is indeed dovish, it could widen the deficit and revive the global "de-dollarization" narrative.