NEW YORK CITY, New York: The U.S. dollar tumbled this week, hitting its lowest levels since 2021 against the euro, British pound, and Swiss franc, as markets ramped up bets that the Federal Reserve will cut interest rates sooner—and more aggressively—than previously expected.

The decline followed Fed Chair Jerome Powell's comments to Congress this week, which investors interpreted as dovish. Powell repeated that inflation could rise this summer but noted that "we will get to a place where we cut rates sooner than later" if price pressures remain contained.

That tone opened the door to a potential rate cut as early as July, according to traders and analysts.

"This week it's definitely been about the Fed," said Eric Theoret, FX strategist at Scotiabank. "The prospect of easing sooner and potentially more rate cuts" is driving the current selloff in the dollar, he said.

Noel Dixon of State Street Global Markets added: "Powell kind of opened the door to potentially a July cut. If the next CPI release is below market expectations, I think markets will start to price in the probability of a cut to July."

As of Friday, Fed funds futures showed a 23 percent probability of a July rate cut, up from 13 percent just a week ago. The likelihood of a cut by September now stands at 93 percent. Traders are currently pricing in 66 basis points of easing by year-end—indicating a potential third 25-basis point move, up from 46 basis points last Friday.

Adding to the pressure on the dollar, President Donald Trump said he plans to nominate a new Fed Chair once Powell's term ends in May 2026. Trump, who has long criticised Powell, said this week that he has "three or four" potential replacements in mind and could name one by September or October. The Wall Street Journal reported that the choice could act as a "shadow Fed Chair," potentially undermining Powell's influence.

"That could be a problem if inflation reaccelerates," said Dixon. "The message there would be that they would discount the inflation."

However, Chicago Fed President Austan Goolsbee pushed back on that idea, stating that any replacement named before confirmation "would have no influence on monetary policy."

This week In forex markets, the euro rose 0.51 percent to US$1.1719, reaching as high as $1.1744—its strongest level since September 2021. The British pound climbed 0.62 percent to $1.3748, touching $1.3770, the highest since October 2021. The Swiss franc surged to 0.799 per dollar, a 10.5-year high. The dollar slipped 0.72 percent to 144.2 yen.

Beyond the Fed, investors are watching two other key U.S. deadlines: a July 9 target for avoiding new trade tariffs, and a July 4 Senate goal for passing a tax and spending bill. That legislation, if passed, could boost growth and potentially support the dollar.

But for now, structural concerns remain. "The budget and current account deficits are negative for the dollar," Dixon said.

Longer term, a reallocation of international capital away from U.S. assets could also weigh on the currency. "You've got a lot of asset managers that are long the U.S. dollar way more than I think they're comfortable," said Theoret.

In crypto markets, bitcoin dipped 0.43 percent to $107,382.