Dollar Crashes to Three-Year Low as Markets Brace for Fed Pivot

The US dollar plunged to its weakest level since 2021 this week, accelerating a months-long slide driven by mounting bets on Federal Reserve rate cuts. Traders across currency pairs, indices, commodities, and crypto repositioned aggressively, with broad implications for some of the most actively traded global assets.

The dollar index (DXY) fell below 98.00, its lowest reading in nearly three years, extending a sustained decline that began in Q1. With the US 2-year yield tumbling and futures markets now pricing in multiple cuts this year, the dollar’s trajectory has flipped decisively bearish—fueling volatility across markets.

Rate Cut Pricing Crushes Yield Appeal

Recent economic data continues to come in soft, with May's core PCE inflation—the Fed’s preferred metric—rising just 0.1% month-over-month. Services sector weakness, tepid labor prints, and falling consumer sentiment have collectively eroded confidence in the Fed’s “higher for longer” stance.

Rate futures now imply a 75% chance of a September rate cut, with as many as three total cuts priced for 2025. The US 2-year yield has dropped 35 basis points over the past two weeks, stripping the dollar of its yield premium and triggering a broad-based unwind in long-dollar positioning.

The shift is hitting FX markets with force. EUR/USD broke above 1.11, its highest since early 2023, while GBP/USD jumped through 1.28. USD/JPY—long a bellwether for yield-sensitive trades—slid below 144, testing levels last seen before Japan’s November intervention threat.

Gold and Oil Extend Breakouts on Greenback Weakness

Dollar softness has reignited buying across commodities, especially those priced in USD. Gold surged past $2,400 per ounce, a record high, as traders hedged against currency debasement and falling real rates. Silver broke above $31.50, extending its outperformance relative to industrial metals.

WTI crude climbed toward $85 per barrel, despite lackluster Chinese demand and high inventories. The weaker dollar is offering support to the broader commodity complex, with Natural Gas also gaining ground as momentum builds in energy contracts.

Gold, oil, and silver—some of the most frequently traded instruments globally—are now in firm uptrends, underpinned by both macro and technical momentum. With the dollar breaking down, demand for hard assets is rising sharply.

US100 and Big Tech Surge on Easing Tailwinds

US tech stocks, already buoyed by AI-fueled momentum, found further support from the dollar’s drop. The US100 index surged to fresh highs, led by heavily traded names like Apple (NASDAQ: AAPL), Nvidia (NASDAQ: NVDA), and Amazon (NASDAQ: AMZN).

Falling Treasury yields are lifting growth valuations, and a weaker dollar is enhancing overseas earnings potential. The combination of dovish Fed bets and dollar depreciation is driving sustained upside in tech-heavy indices.

US500 futures also caught a bid, climbing toward record territory as dollar-sensitive multinationals advanced. With financial conditions easing in real terms, risk appetite is holding firm even as macro data continues to soften.

Crypto Rebounds as Dollar Weakens

Bitcoin (BTC) and Ethereum (ETH) reversed early-month losses, with BTC reclaiming the $65,000 level. As dollar pressure intensified, traders rotated into crypto as both a hedge against fiat debasement and a speculative bet on broader liquidity expansion.

Despite lingering regulatory uncertainty, BTC and ETH remain dominant in trading volumes. Their rising sensitivity to shifts in US monetary expectations is making them a useful barometer for risk-on sentiment across digital and traditional markets alike.

Tips for Traders

• EUR/USD may push toward 1.1250 if September rate cut odds increase further.

• Gold momentum favors $2,450 if real yields stay under pressure.

• US100 strength likely to persist as falling dollar boosts tech multiples.

• WTI Crude remains supported above $83 with macro tailwinds intact.

• BTC/USD could test $68,000 if risk-on sentiment persists and dollar weakness deepens.

• USD/JPY may slide to 142.00 as US-Japan yield spread narrows.