The USD is the world’s reserve currency and the most traded currency on the foreign exchange market. Higher interest rates tend to boost the value of a country’s currency by attracting more foreign capital, as investors anticipate making bigger returns. The rally comes after months of volatility, fueled by concerns that the dollar may be losing its status as the world’s reserve currency. Speculation about the potential de-dollarization of global trade rose again last month after the Chinese-led expansion of the BRICS group of nations to include major oil producers, such as Saudi Arabia. This rise is due to a weaker dollar and worries about the United States’ financial situation. Analysts at JP Morgan predict GBP/USD to experience fluctuations throughout 2025.
EU calls for ‘respect’ after Trump threatens 50% tariffs
Currently, the dollar is two standard deviations above its 50-year average, suggesting limited room for further appreciation. Historically, the dollar has alternated between periods of strength and weakness, making a downturn likely at some point, though the timing is uncertain. Additionally, the U.S.’s persistent trade balance deficit, at 4.2% of GDP as of September 2024, poses a long-term constraint, highlighting a structural challenge that could eventually pressure the currency.
EUR/USD forecast: Will USD strengthen against the euro?
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Europe’s official statistics agency Thursday revised down its estimate of GDP growth for the 20 countries sharing the euro from 0.3% to 0.1% for the second quarter of this year. That should give American consumers the confidence to carry on spending — and the US Federal Reserve greater incentive to keep interest rates stuck at a 22-year high in an attempt to cool inflation. “The US economy continues to demonstrate remarkable strength, while matters in China and Europe, in particular, seem to be descending into a much more recessionary place,” Athey added.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet. As ever, the US Dollar is likely to stay reactive to any trade-related headlines, while remarks from Fed officials will provide additional insight and likely keep markets on their toes. Next week, attention will turn to the release of the FOMC Minutes and the latest PCE inflation data. To the extent permitted by law, in no event shall Capital.com (or any affiliate or employee) have any liability for any loss arising from the use of the information provided.
Historically, when equities decline, investors seek stable assets, which usually includes the US dollar and US government bonds. Treasuries are considered among the safest investments in the world due to the US government’s creditworthiness. Meanwhile, the dollar, seen as the world’s primary reserve currency, tends to appreciate against a basket trade99 review of other major currencies when global uncertainty rises. The dollar’s status as the world’s reserve currency makes it particularly valuable – the US is home to prestigious universities, a formidable military and remains a global leader in technology, science and legal frameworks. As a result, businesses, banks and people often view the dollar as the “currency of invoicing” – oil and commodities are all priced in dollars, for example.
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- The U.S. dollar continued its slide on Monday, falling to its lowest level since 2022, as global investors retreat from U.S. assets in the face of tension between President Donald Trump and the Federal Reserve.
- Trump criticized Powell again on Monday, calling the Fed Chair “Mr. Too Late” and “a major loser” in a post on Truth Social.
- The U.S. Federal Reserve (Fed) sets interest rates, influencing the dollar’s value.
- The Fed maintained this rate through September 2024, when it lowered rates by 50 bps.
Monetary policy, according to him, is “slightly restrictive” and ideal for responding to future developments. The Greenback had recovered in recent weeks after plummeting around 9% during its pronounced retracement seen in March-April. Whether USD is a buy, sell or hold for you depends on your trading objectives. Your decision to trade depends on your attitude to risk, your expertise in the market, the spread of your portfolio and how comfortable you feel about losing money.
Elsewhere, ING projects that the USD will maintain its strength through 2025, supported by the Federal Reserve’s measured approach to rate adjustments, robust economic growth, and global trade developments. However, persistent inflation and geopolitical uncertainties could introduce volatility into currency markets. The dollar is often seen as the global reserve currency, and U.S. assets have broadly outperformed the rest of the world for the past decade, spurring rising demand for the greenback. However, U.S. stock and bond markets have fallen during the tariff standoff between the Trump administration and other foreign leaders, appearing to drag down the dollar with them. The dollar has fallen sharply since President Donald Trump’s inauguration in January. The April 2 rollout of the global reciprocal tariffs seemed to spur one round of selling.
- Economists expect this decision to be announced on February 6, 2025, alongside updated economic growth and inflation forecasts.
- This will be the last official jobs data investors see before February’s heavily anticipated unemployment report next Friday.
- Consequently, money markets are now anticipating three additional 25 basis point rate cuts within the year.
- Both equities and bonds have sold off on concerns that the aggressive tariffs will lead to a trade war, higher inflation and a global growth shock.
- But American businesses and consumers could end up paying more for imported goods.
All else being equal, that stokes inflation, he added, but the rate of price rises is influenced by other factors as well. The focus will remain on the Japanese bond market, with an auction of Japan’s longest-tenor bonds due on Wednesday a litmus test for appetite for that type of debt as investors weigh worsening finances of major government issuers. The cryptocurrency market is moving broadly sideways, with Bitcoin’s (BTC) recovery weakening under $110,000 ahead of the release of the Federal Reserve (Fed) meeting minutes on Wednesday.
Winemakers finding Trump’s tariffs hard to swallow
The bank anticipates a decline to 1.21 in the first quarter, followed by a recovery to 1.32 by December. This outlook reflects expectations of U.S. dollar strength in the early part of the year, driven by factors such as robust U.S. economic performance, higher interest rates, increased productivity, and a widening innovation gap. In the latter part of the year, the pound is expected to regain strength as mitigating factors, including potential tariff reductions and a resolution of geopolitical tensions, come into play.
American exporters also stand to gain because, as the price of their products falls in other currencies, they become more competitive abroad. Traders hit their desks Tuesday morning like sprinters out of the blocks, still shaking off the BBQ smoke and armed with a pent-up cocktail of cash, FOMO, and a headline they’ve seen before—only shinier. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Furthermore, momentum indicators have now shifted their attention to a renewed bearish momentum. The Relative Strength Index (RSI) has deflated below 40, while the Average Directional Index (ADX) remains elevated near 28, reinforcing the sense of a strengthening trend.
The US Dollar Index, which measures the value of the US Dollar against six major currencies, is steadying after registering more than 0.50% gains in the previous session. He also said that he wouldn’t necessarily call the dollar weak, adding that the recent moves in foreign-exchange have been driven more by other currencies appreciating rather than the greenback softening. (Bloomberg) — The US dollar slumped to its lowest level since 2023 as new tariff threats from President Donald Trump and the risk of a widening fiscal deficit drag on the currency’s appeal. Initial claims have come in lower than expected in recent weeks and remain well below their pre-pandemic levels. This will be the last official jobs data investors see before February’s heavily anticipated unemployment report next Friday.
Tesla shares surged 5% after CEO Elon Musk announced he is turning his attention away from politics to concentrate more fully on his businesses. The move reassured investors who have been closely watching Musk’s public engagements and their potential impact on Tesla’s performance. A record-breaking domestic box how to become a successful forex trader office over Memorial Day weekend sent shares of movie theater companies higher on Tuesday. AMC’s stock soared 22%, Cinemark rose 3% and Marcus Theatres’ parent company Marcus Corporation popped 10%.
Trump Media announced Tuesday a $2.5 billion raise from institutional investors to bankroll one of the largest bitcoin treasury allocations by a public company, according to a CNBC report. The Russell 2000, which tracks small-cap companies, gained 1.7% by late morning trading. This boost pushed the index’s gains to over 5% for May, although it remains about 7% lower year-to-date in 2025. Despite growing political pressure and fresh tariff threats, Morgan Stanley believes Apple is unlikely to shift its iPhone production back to the United States anytime soon. In a note to clients, the Wall Street firm reiterated its overweight rating on Apple, citing that the company’s current valuation already factors in the potential impact of a 25% import duty.
Gold rises while hopes of swift progress in EU-US trade talks restrict upside
Tesla stock soared 7% as Elon Musk said he will devote more time to his businesses. “I can see two more quarters of US dollar weakness, particularly if it becomes even more clear that the Fed is going to cut interest rates,” Ulrich Leuchtmann, head of foreign exchange research at Commerzbank, told CNN. Equity markets how to invest in mining stocks experienced a downturn on Tuesday, with the Nifty dropping 0.7% due to global uncertainties, trade tension concerns, and rising US debt anxieties.