Will The Dollar Continue To Fall?

March 20, 2025 Diana Zapata Economy, News 0
| Published March 20, 2025

There are not only cyclical but also structural and even systemic factors that may make continued dollar weakening more likely. Warning signs in the US economy are flashing red, and most other countries are urgently looking for ways to reduce their economies’ dependence on Donald Trump’s America.

The ZeroHedge article “Will The Dollar Continue To Fall?” by Jim O’Neill discusses the unexpected decline of the U.S. dollar in early 2025, despite forecasts predicting its strength following President Trump’s election victory. Several factors contribute to this downturn:

Trade Policies and Tariffs: The Trump administration’s implementation of tariffs, intended to bolster U.S. manufacturing, has raised concerns about their negative impact on U.S. consumers and the broader economy.

Currency Realignment Efforts: There have been discussions about a new version of the 1985 Plaza Accord, referred to as the “Mar-a-Lago Accord,” aiming to encourage other countries to strengthen their currencies against the dollar.

Global Economic Diversification: Other countries are actively seeking to reduce their economic dependence on the U.S., exploring alternatives to the dollar in international trade and finance.

These factors suggest that the dollar’s weakening may continue, influenced by both cyclical and structural elements.

INSIGHTS

The article highlights key reasons for the U.S. dollar’s recent decline, despite expectations of strength following Trump’s election victory. Here are some additional insights:

1. Tariffs & Trade Policies – A Double-Edged Sword

  • Tariffs are meant to protect U.S. manufacturing, but they also increase costs for American consumers and businesses. If inflation rises due to these tariffs, the Federal Reserve may face pressure to cut interest rates, which could weaken the dollar further.
  • Countries affected by these tariffs may retaliate, reducing demand for U.S. exports and potentially harming the U.S. economy in the long run.

2. A “Mar-a-Lago Accord” – Currency Realignment?

  • If the U.S. actively encourages other countries to strengthen their currencies, it could reduce the dollar’s dominance. However, previous agreements like the Plaza Accord of 1985 led to market volatility and unintended economic consequences.
  • A weaker dollar can boost U.S. exports by making them more competitive globally, but it also makes imports more expensive, contributing to inflationary pressures.

3. De-Dollarization Trends Are Accelerating

  • Many countries, especially BRICS nations, are working to reduce dependence on the dollar by increasing trade in alternative currencies.
  • If this trend continues, global demand for dollars could decline, making it harder for the U.S. to finance its deficits and potentially leading to higher interest rates.

Conclusion

The dollar’s decline isn’t just about short-term market moves—it reflects deeper shifts in global trade, monetary policy, and geopolitical strategy. If the U.S. government pursues aggressive tariffs and currency realignment, combined with de-dollarization efforts from other nations, the dollar’s long-term trajectory could be weaker than many expect. Investors should watch for policy shifts, Fed decisions, and international trade responses as key drivers of future dollar performance.

SOURCES : ZEROHEDGE – Will The Dollar Continue To Fall?
THE WALL STREET JOURNAL – Trump’s New World Order Tests the Dollar
FINANCIAL TIMES – Maybe it is a healthy correction
REUTERS – Dollar inches higher as Fed’s signals no rush to cut rates

RELATED: Dollar comes back bid

| Published March 20, 2025

This article discusses the recent strengthening of the U.S. dollar following a period of decline. This resurgence is attributed to stronger-than-expected U.S. economic data, including robust employment figures and consumer sentiment, which have led to speculation that the Federal Reserve may delay or reduce the magnitude of anticipated interest rate cuts. Consequently, the dollar has appreciated against major currencies such as the euro and yen. Additionally, the article notes that U.S. Treasury yields have risen, reflecting increased investor confidence in the U.S. economy.

The recent strengthening of the U.S. dollar is influenced by several key factors:

  1. Federal Reserve’s Monetary Policy: The Federal Reserve has maintained interest rates at 4.25-4.5%, citing concerns over tariff-induced inflation and a slowdown in economic growth. This decision has contributed to the dollar’s appreciation against other major currencies.

  2. Economic Growth Projections: Despite a downward revision of the U.S. GDP growth forecast to 1.7% for 2025, the U.S. economy is still expected to outpace other developed markets, which supports the dollar’s strength.

  3. Global Economic Uncertainty: Ongoing trade tensions and geopolitical events have led investors to seek safe-haven assets, bolstering the U.S. dollar’s position.

  4. Treasury Yields: U.S. Treasury yields have experienced fluctuations, reflecting investor sentiment and influencing the dollar’s value.

These factors collectively contribute to the current dynamics of the U.S. dollar in the global financial markets.

INSIGHTS: 

The U.S. dollar’s recent rebound signals key shifts in market expectations and broader economic conditions:

  1. Fed Policy Uncertainty – The dollar’s strength suggests traders are adjusting their bets on Fed rate cuts. If strong economic data continues, the Fed may delay or reduce cuts, keeping the dollar elevated.

  2. Global Currency Impact – A stronger dollar pressures other currencies like the euro and yen, making imports cheaper for the U.S. but increasing debt burdens for emerging markets with dollar-denominated loans.

  3. Treasury Yields & Market Confidence – Rising U.S. Treasury yields indicate that investors see resilience in the economy. This supports the dollar, as higher yields attract capital inflows.

  4. Potential for Volatility – If upcoming inflation or employment data contradicts the current trend, markets could react sharply, leading to renewed dollar fluctuations.

Bottom Line:

The dollar’s strength reflects confidence in the U.S. economy, but market sentiment could shift quickly based on future data and Fed signals. Investors should watch Fed commentary and inflation trends closely.

SOURCES : FXSTREET – Dollar comes back bid

 

 

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