USD Drops 0.8% Weekly as Fed Rate Cut Expectations Surge

The US dollar experienced its sharpest weekly decline in six weeks, falling 0.8% against a basket of major currencies as market expectations for a Federal Reserve rate cut on September 17 intensified. The DXY index closed the week at 100.85, down from 101.70, marking a break below key technical support. Fed funds futures now price in an 85% probability of a 25 basis point cut, with some traders betting on a more aggressive 50 basis point reduction. EUR/USD surged 120 pips to 1.1090, while GBP/USD gained 95 pips to 1.3175. USD/JPY retreated to 147.20 as safe-haven flows benefited the yen. Recent US economic data, including softer inflation readings and cooling labor market conditions, has reinforced dovish Fed expectations. Traders should prepare for continued dollar weakness if the Fed signals an easing cycle at next week's FOMC meeting.