The dollar's index against the most traded world currencies has now lost more than 10% in 2025 to date just as the half-year mark approaches next week and it is now at its weakest in three years.
That is the index's worst six month performance since 1991, and it is its worst first half since the start of the floating exchange rate era 52 years ago.
The euro soared above $1.17 to its highest in almost four years, the Swiss franc hit its strongest in a decade and sterling hit its best level since 2021.
The dollar slide has snowballed since Trump's trade war unfolded in April amid worries about foreign investor flight and uncertainty about U.S. policymaking. A revival of Europe's economic outlook has been the flipside, spurred by a ratcheting up of regional defense spending and Germany's dramatic fiscal boost.
Wary of the inflationary effects of tariff increases, the Fed has held the line on interest rates while other central banks continued easing. But speculation about a resumption of rate cuts this year has mounted again this month - with particular focus on what happens after Fed Chair Powell's term ends next May.
The trigger for the overnight dollar lurch lower appears to have been Trump's latest salvo against Powell and his reluctance to back a rate cut now - a stance the Fed boss underlined in congressional testimonies this week.
But attending the NATO summit in The Hague on Wednesday, where the alliance pledged to lift defense spending toward 5% of GDP over the next decade, Trump said he would soon name his picks to replace what he called a "terrible" Powell next year.
With splits emerging among the Fed policymakers about how soon to start cutting rates again, markets have started to stack up easing bets amid reports of a Trump-appointed "shadow" Fed chair emerging over the remainder of the year to undermine Powell's authority.
Fears for Fed policymaking independence from politics are now rife.
Fed futures pricing now expects rates to fall by 137 basis points to 3% by early 2027, 30 bps more than it priced in one month ago. There is now a one-in-four chance of a cut as soon as July and some 63 bps of Fed cuts expected by year-end.
Negotiating another heavy week of debt sales, two and 10-year Treasury yields fell to near two-month lows on Thursday.
The Fed also unveiled a proposal on Wednesday that would overhaul how much capital large global banks must hold against relatively low-risk assets, as part of a bid to boost participation in U.S. Treasury markets. That lifted bank stocks.
The full reversal of recent oil price gains this week as the Israel-Iran ceasefire holds added to a more benign inflation picture and U.S. crude is back registering losses of 20% year-on-year.
Trump said on Wednesday the U.S. had not given up its maximum pressure on Iran, but signaled a potential easing in enforcement of restrictions on the sales of Iranian oil to help the country rebuild. Talks with Iran are due next week.
Stock markets were firmer across the world, with MSCI's all-country index eking out a new record high and the Nasdaq 100 hitting a new record on Wednesday.
The S&P 500 is now within 1% of its all-time high too as the second-quarter earnings season nears next month. Although it ended flat on Wednesday, futures were higher ahead of Thursday's bell.
Thursday sees a stream of economic updates on May trade and weekly jobs, with this week's consumer confidence and housing updates readings showing notable weakness.
In the backdrop, markets are watching for the possible passing of Trump's fiscal bill and debt ceiling rise in Congress by the July 4 holiday and then early next month sees the spotlight falling on an expiry of his 90-day pause on April's "reciprocal" tariff hikes.
With no further bilateral trade deals announced of late, speculation is rising about an extension of the pause.
Treasury Secretary Scott Bessent, meantime, extended the department's authority to continue extraordinary cash management measures to keep from breaching the federal debt ceiling by nearly a month, until July 24.
Elsewhere, oil giant Shell said it had not bid for BP and was not actively considering such a move, adding it was bound by UK regulations which mean such a statement banned it from making a bid for BP for the next six months.
The Wall Street Journal reported on Wednesday that Shell was in talks to acquire BP.
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