Dollar Volatility Surges Amid Fed Rate Cut Bets and Tariff Worries

As of August 5th, 2025, the U.S. dollar has been subject to considerable volatility, driven by increasing expectations of Federal Reserve rate cuts and concerns over the economic impact of recently imposed U.S. tariffs.

The dollar's wavering performance was largely attributed to a weak jobs report released last Friday, which indicated cracks in the labor market and prompted traders to swiftly price in rate cuts for the Fed's next meeting in September. This sentiment was further exacerbated by personnel changes at the central bank, including the firing of a top statistics official and the resignation of Federal Reserve Governor Adriana Kugler.

The market unease surrounding these developments has led to a sharp dive in the dollar, which touched a one-week low on Friday. While the currency found some footing on Monday, it remained weaker in early trading on Tuesday, with the euro last buying $1.1579 and sterling standing at $1.3298.

Traders are now pricing in a 94.4% chance of the Fed cutting rates in September, a significant increase from the 63% probability a week earlier. Goldman Sachs expects the central bank to deliver three consecutive 25 basis point cuts starting in September, with a 50 basis point move possible if the unemployment rate climbs further.

The focus also remains on the broader economic impact of the tariffs recently imposed by U.S. President Donald Trump on scores of countries, which have stoked worries about the health of the global economy. The Japanese yen and Swiss franc have also been affected, with the latter gearing up to make a "more attractive offer" in trade talks with Washington to avert a 39% U.S. import tariff on Swiss goods.

As the long-term implications of these tariffs remain uncertain, traders are bracing for continued volatility in the currency markets.