US Dollar Index attracts some sellers below 97.50, US PCE data in focus

• The US Dollar Index trades in negative territory around 97.25 in Friday’s Asian session. 

• The prospect of Trump announcing the next Fed Chair weighs on the US Dollar as traders bet on US rate cuts.

• The US economy shrank faster than expected during the first three months of this year. 

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, remains on the defensive near 97.25, its lowest level in three and a half years during the Asian session on Wednesday. 

US President Donald Trump was considering selecting the next Federal Reserve (Fed) Chair early, fueling fresh bets on US rate cuts. Trump said that he has a list of potential Powell successors down to “three or four people,” without naming the finalists. The concerns over the future independence of the Fed could undermine the US Dollar (USD) against its rivals. 

"For now, expectations President Trump will choose a more dovish chair will keep downward pressure on FOMC pricing and the USD,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

Meanwhile, financial markets have priced in the possibility of a rate cut at the Fed's next meeting in July to 25%, up from just 12% a week ago, and priced in 64 basis points (bps) of reductions by year-end, up from around 46 bps last week, according to Reuters.

The US Gross Domestic Product (GDP) fell at an annual rate of 0.5% in the first quarter (Q1) of 2025, according to the US Bureau of Economic Analysis (BEA) on Thursday. This reading came in worse than the previous estimate and the market expectation of -0.2%. The downbeat GDP data contribute to the Greenback’s downside.

Traders will keep an eye on Friday's release of US Personal Consumption Expenditures (PCE) - Price Index data for May, the Fed's preferred inflation measure. If the report shows a stronger-than-expected outcome, this could help limit the USD’s losses in the near term.