Dollar Plunges Toward Worst Weekly Loss Since June as Traders Bet on Rate Cuts
The greenback is taking a beating. Traders are piling into bets that the Federal Reserve will slash interest rates, sending the U.S. dollar toward its worst weekly performance since June.
The Rate Cut Rally
Forget fundamentals—the market's running on pure speculation. Every whisper from a Fed official gets magnified into a screaming headline, fueling a frenzy that's got the dollar on the ropes. It's a classic case of the market front-running the policymakers, a dance as old as Wall Street itself.
Currency Carnage
The sell-off isn't subtle. It's a broad-based retreat, with the dollar index—that key gauge against a basket of rivals—getting hammered. This kind of move signals a major shift in sentiment, one that has traditional finance scrambling and crypto traders leaning in with a knowing smirk. After all, what's bad for fiat has a funny way of being good for digital assets.
The Bigger Picture
Let's be real: this is about liquidity. The mere anticipation of cheaper money is like catnip for risk assets. If the Fed does pivot, that capital has to flow somewhere. History suggests it won't just sit in bonds. A weaker dollar traditionally acts as rocket fuel for alternative stores of value—and in the modern era, that conversation starts with Bitcoin.
So, while the forex traders sweat over weekly charts, the smart money is already looking past the dollar's drama. They're eyeing the real opportunity: a potential flood of capital searching for an exit from a weakening monetary system. It's almost enough to make you believe in efficient markets—almost.
Currency traders bet against the dollar as liquidity dries up
The dollar’s slide this week was helped by rising appetite for risk-sensitive currencies like the Australian dollar and Norwegian krone, which both outperformed.
Over in the bond market, the dollar’s pain has been Treasuries’ gain. 10-year yields dropped about three basis points to 4.12%, staying in a tight range but pointing to steady buying. Traders have nearly priced in a 90% chance that the Fed won’t touch rates at the next meeting. But markets still expect at least two more quarter-point cuts by year-end, one by mid-year, and another before 2026 kicks in.
While the dollar floundered, stocks stayed in party mode. The S&P 500 hit a new all-time high on Friday. The Dow and Nasdaq were also hovering around weekly gains of more than 1%. It’s the fourth winning week out of the last five for the S&P, even though trading volumes were light coming off the Christmas holiday.
Wednesday’s session was already a record-breaker, with the S&P notching new intraday and closing highs. U.S. markets were closed on Thursday, but traders returned Friday still riding the momentum.
Investors are DEEP into what’s known as the Santa Claus rally, that quiet year-end stretch that historically lifts stocks. Since 1950, the S&P 500 has averaged a 1.3% gain during this seven-day window, based on Stock Trader’s Almanac data.
Tom Hainlin, national investment strategist at U.S. Bank Asset Management, said, “People are taking profits here and there, or buying on lows, but there’s not a lot of information. You’re not getting corporate profit results. You’re not getting a lot of economic data, so it’s probably just more technicals and positioning heading into here.”
Tom also pointed to a change in what’s driving the market, which is tech stocks weren’t behind the latest gains, instead, it was financials and industrials.
“That just gives more confidence heading into 2026 that it’s not just tech here and everybody behind them,” Tom said. “It’s the market benefiting from the tax bill that was signed in July, the rate cuts that came in the fourth quarter of this year. Heading into 2026, those are some tailwinds.”
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