The US Dollar fluctuated on Friday, lingering close to its lowest point in three and a half years against the Euro and the Pound, as traders bet on more significant US interest rate cuts and awaited trade agreements before President Donald Trump’s July tariff deadline.

With tensions from the Israel-Iran conflict easing following a seemingly stable ceasefire, market attention this week has shifted toward US monetary policy.

Speculation that President Trump may announce a more dovish successor to Federal Reserve Chair Jerome Powell earlier than usual, potentially to weaken Powell’s influence, has increased expectations of upcoming rate cuts, Reuters reports.

Powell, whose term expires in May, also appeared more dovish during his testimony to Congress this week, reinforcing market expectations for further easing. As a result, traders are now anticipating 64 basis points of rate cuts this year, up from 46 basis points projected last Friday.

“The sooner a replacement is announced for Powell, the sooner he could be perceived to be a ‘lame duck',” stated Carol Kong, a Commonwealth Bank of Australia currency strategist.

Trump has not yet chosen a replacement for Jerome Powell, and no announcement is expected in the near term, a source familiar with the White House’s internal discussions told Reuters on Thursday.

“For now, expectations President Trump will choose a more dovish chair will keep downward pressure on FOMC pricing and the USD,” Kong said.

Trump has repeatedly criticised Jerome Powell and pushed for interest rate cuts this year, fuelling investor concerns over the gradual weakening of the Federal Reserve's independence and credibility.

The Euro slipped to $1.16885 after reaching $1.1745 in the prior session, its highest level since September 2021. Meanwhile, the Pound was trading at $1.3725 at the time of writing, slightly below Thursday’s peak of $1.37701, its strongest since October 2021.

Meanwhile, the Dollar index, which tracks the greenback against six major peers, hovered near its lowest level since March 2022 at 97.398. It is on track for a 2% decline in June, marking its sixth consecutive monthly loss.

The index has fallen over 10% this year as concerns over US economic growth, driven by Trump's tariff policies, prompt investors to seek safer or more promising alternatives to the Dollar.

In addition, the Yen edged down slightly to 144.56 per Dollar, while the Swiss Franc traded at 0.8013 per Dollar, hovering near its strongest level in 10 years.