US Dollar Posts Worst First Half in 50 Years. Forecast as of 01.07.2025
Pressure from the US administration on the Fed, along with its intention to weaken the US dollar, led to a more than 10% decline in the USD index in the first half of 2025. Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- The US dollar has only experienced two instances of similar weakness in its history.
- If the Fed succumbs to political pressure from the US administration, the USD index is likely to fall further.
- Tariffs are only part of Donald Trump’s game plan.
- Long trades on the EURUSD pair can be opened with targets at 1.2 and 1.22.
Monthly US Dollar Fundamental Forecast
History tends to repeat itself. The US dollar has only exhibited similar weakness on two previous occasions in its history. In 1973, Arthur Burns, Chairman of the Federal Reserve, complied with pressure from President Richard Nixon and reduced interest rates. In 1985, the US administration exerted significant pressure on its trading partners, compelling them to engage in a coordinated currency intervention known as the Plaza Accord. Does this scenario mirror the current financial landscape?
US Dollar’s Biggest First-Half Losses
Source: Bloomberg.
Donald Trump has made Jerome Powell’s position as Chairman of the Federal Reserve challenging, as Powell has been reluctant to ease monetary policy. The US president has not only criticized the Fed chairman, but he has also insulted him. However, if the head of the central bank relents at any point, Commerzbank anticipates that this will trigger a further decline in the USD index.
I do not believe this will occur. Jerome Powell is determined to avoid a similar fate to that of Arthur Burns. The markets have expressed a degree of skepticism regarding the strength of his resolve. Over the past month, the derivatives market has increased the probability of three federal fund rate cuts in 2025 from 29% to 49%. If the US employment report for June disappoints, the odds will exceed 50%.
Forecasts for US GDP and Fed Rate
Source: Bloomberg.
The events of 1985-1986, during which the US administration exerted pressure on its trading partners and coordinated currency intervention, bear a striking resemblance to the current situation. Donald Trump’s approach to negotiations has been characterized by the use of intimidation tactics and the threat of tariffs, which have become a hallmark of his political strategy. However, import duties represent only one component. The US President wants to use tariffs to revitalize domestic manufacturing. Due to the high labor costs, these industries may face challenges in maintaining a competitive edge. Devaluation is a strategy that has the potential to address the issue.
According to Agriculture Secretary Brooke Rollins, the US administration will consider exemptions from tariffs for goods that are difficult to cultivate domestically, such as cocoa beans and coffee. All other production will be redirected to the United States. To implement this strategy, Donald Trump’s administration is pursuing a weak dollar policy.
The growth of the EURUSD pair is driven by increased uncertainty ahead of the expiry of the 90-day tariff delay. The US administration has indicated that it will increase import duties for countries that are not negotiating in good faith. For others, the delay may be extended. Investors are beginning to voice concerns about the potential impact of tariff increases after July 9. Their sharp increase after “Liberating Day” in the US triggered a collapse in the USD index.
Monthly EURUSD Trading Plan
When the US president wants to devalue the US dollar and reduce interest rates, the EURUSD pair tends to rise. Therefore, long positions with targets at 1.2 and 1.22 can be considered.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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