The United States dollar fell on Wednesday, August 13, 2025, as new economic data pushed more investors to believe that the U.S. Federal Reserve will cut interest rates in September. This follows fresh inflation figures that showed slower price growth, raising hopes that the Fed will soon ease its tight monetary policy.
Data released by the U.S. government showed that consumer prices rose by 0.2 percent in July compared to June, and by 2.7 percent compared to July last year. Both figures were slightly below market forecasts, giving traders more confidence that inflation is cooling.
In response, market expectations for a September rate cut surged. Traders put the odds at about 98 percent, up sharply from earlier in the week. This strong expectation led to a drop in the dollar index to around 98.02, continuing the downward movement that began after the inflation report was published.
The foreign exchange market also reacted. The euro strengthened to about $1.1684, while the Japanese yen held steady. U.S. Treasury yields, especially for short-term securities, dropped as investors priced in lower interest rates. Longer-term bond yields also fell slightly, signalling a broader adjustment in expectations for the American economy.
Political developments in the United States have also added pressure on the currency. Reports from Washington suggest that President Donald Trump is unhappy with the Federal Reserve’s independence and is even considering legal action against Fed Chair Jerome Powell over office renovations at the central bank’s headquarters. These developments have made some investors uneasy about the political risks surrounding U.S. monetary policy.
Several financial institutions have backed the view that a September rate cut is likely. Nomura, a global investment bank, said that the mild inflation figures, combined with signs of weakness in the U.S. job market, make a rate cut in September very likely. The bank also predicted smaller rate cuts in December 2025 and March 2026 but ruled out a more aggressive 50 basis-point cut for now, saying the Fed is likely to move cautiously.
The softer U.S. inflation data and rate cut expectations have lifted stock markets globally. In Asia, Japan’s Nikkei index crossed the 43,000 mark for the first time, while markets in Hong Kong, Singapore, India, and other Southeast Asian countries also posted strong gains. Investors believe that lower U.S. interest rates could support global growth and boost trade flows.
The gold market also responded to the weaker dollar. Spot gold prices rose by 0.2 percent to $3,351 per ounce, as investors turned to the precious metal for safety. Silver and platinum prices also recorded slight increases. Analysts say the movement in gold prices shows that some investors are hedging against uncertainty, even as equity markets climb.
Meanwhile, equity funds outside the U.S. attracted their biggest monthly inflow in over four years, as global investors shifted money to markets with stronger growth prospects and better stock valuations. This shift highlights how expectations for U.S. monetary easing are influencing investment flows worldwide.
However, not everyone is convinced that a September rate cut is certain. Analysts, including Commonwealth Bank currency strategist Carol Kong, have warned that one set of inflation data is not enough for the Fed to make a final decision. She noted that upcoming labour market data and the next inflation report will play a critical role in shaping the Fed’s move.
For now, July’s mild inflation has set off a chain reaction in financial markets: a weaker dollar, rising global stock markets, and higher demand for gold. But with several weeks left before the September meeting, investors will be watching every new economic signal closely to see if the Federal Reserve follows through on these growing expectations.
