US Dollar Drifts Lower on US-South Korea Trade Talks. Forecast as of 15.05.2025
Rumors that the US will demand its partners revalue their currencies to eliminate imbalances have boosted the South Korean won, Japanese yen, and Taiwanese dollar, and have bolstered the EURUSD pair. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The US has achieved success with the S&P 500, but has encountered challenges with Treasuries.
- The US may propose that its partners revalue their currencies.
- Europe is becoming a major destination for Chinese goods.
- Long trades on the EURUSD pair opened at 1.1065 should be maintained.
Weekly US Dollar Fundamental Forecast
Despite the administration’s attempts to instill fear in the markets, it is evident that President Donald Trump is achieving certain progress. In April, the US collected a record $16.3 billion in customs duties, Aramco signed deals with American companies worth $90 billion, and the economy is standing strong. For instance, San Francisco Fed President Mary Daly has stated that the strength of the economy enables the Fed to adopt a patient approach. The budget has been replenished, investments are on the rise, and there is an ongoing need for further development. The challenge lies in the numerous contradictions inherent in the political landscape, which can make it difficult for investors to anticipate where and when these shifts will occur.
Markets are uncertain about Donald Trump’s intentions. It is evident that he is seeking higher stock indices and lower Treasury bond yields. Additionally, he may seek a weaker US dollar. The initial objective is nearing completion: following a decline in April, the S&P 500 index surged by 17%, returning to its year-start levels. The current price is just over 4% below its February record high.
Performance of S&P 500 Index, 10-Year Treasury Yield, and USD Index
Source: Bloomberg.
The intricacies of Treasury yields require a more nuanced approach. They collapsed in April due to fears of a recession, but the de-escalation of trade conflicts has reduced the chances of a downturn. Meanwhile, the derivatives market began to curtail the Fed’s monetary expansion. Three weeks ago, there was talk of four acts in 2025, but now the market is unsure about two. Donald Trump is exerting pressure on the Fed, but Jerome Powell remains unaffected.
The US dollar is a currency that is both straightforward and complex. Investors often find themselves uncertain whether the US administration wants to devalue it. The US President has asserted that the weakness of Asian currencies provides their exporters with an unfair advantage over their American competitors. Washington has expanded its monitoring list to include Taiwan, Japan, and South Korea. The appreciation of their currencies was driven by rumors that the US is seeking revaluation from its partners as part of efforts to eliminate trade imbalances.
The won surged, propelling the EURUSD pair higher, following reports of currency policy discussions during negotiations between the US and South Korea. However, Bloomberg reported that the US administration did not intend to weaken its competitors’ currencies, hurting the European currency.
Trade balance of European Union with China
Source: Bloomberg.
Markets are exhibiting signs of anxiety, though these concerns are arguably unfounded. The upward trend in the EURUSD pair remains intact because trade tensions between the US and China drive businesses to seek alternative markets for their goods, with Europe becoming a primary destination. The country’s foreign trade surplus is expected to decline, improving the capital account. The influx of capital into European markets is a compelling rationale for purchasing the euro.
Weekly EURUSD Trading Plan
The measures implemented by President Trump to address the US trade deficit can also be applied to the eurozone. These developments are laying a solid foundation for a rally in the EURUSD pair, so long trades formed at 1.1065 should be kept open.
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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