Despite the current turbulence in the US dollar, we see short-term recovery potential for the US currency. According to our economists, the backtracking by the US administration reduces the risk of a US recession and thus the need for the Federal Reserve to react to the impact of the tariffs with rapid interest rate cuts, even if the market currently seems to think otherwise, Commerzbank's FX analyst Thu Lan Nguyen notes.
Investor confidence in USD is eroding
"Our economists expect the first rate cut in September, while the market is pricing in a cut as early as June. However, we now see a higher low for EUR/USD - 1.08 instead of 1.05 - as the US tariff policy will undoubtedly not only leave its mark on the economy, but will also have weakened the US dollar permanently. We therefore expect the US dollar to continue to depreciate in the longer term."
"The US government's goal is to eliminate the US trade deficit. In their view, tariffs are one tool to achieve this goal, while a weak US dollar is likely to be another. Trump is therefore unlikely to tolerate any significant appreciation of the US currency. Any appreciation will now come with the risk of intervention by the US president. What's more, if the US trade deficit doesn't fall significantly, actively weakening the US dollar could move up the administration's agenda. The most obvious avenue would be through the Federal Reserve."
"Moreover, Trump's erratic tariff policy is likely to have permanently damaged the belief in US exceptionalism and investor confidence in the dollar's safe-haven status. The sometimes significant rise in US yields can be explained by the fact that some investors have left US Treasuries due to a loss of confidence. This also justifies a higher USD risk premium. We therefore raise our EUR-USD forecast for the end of 2026 from 1.10 to 1.15."
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
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.
FXStreet and the author do not provide personalized recommendations. 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. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
Gold corrects from record-high, holds near $3,300 on broad USD weakness
Gold clings to strong daily gains near $3,330 after setting a new record-high near $3,320 earlier in the day. Persistent worries about the escalating US-China trade war and US recession fears continue to weigh on the USD, while boosting the demand for safe-haven Gold ahead of Fed Powell's speech.
EUR/USD holds firm above 1.1350 ahead of Powell speech
EUR/USD is strongly bid above 1.1350 in European trading on Wednesday. The pair draws support from a fresh round of selling in the US Dollar amid persistent fears over US-China trade war and a lack of progress on EU-US trade talks. Fed Chairman Powell is scheduled to deliver a speech later in the day.
GBP/USD trades at multi-month highs above 1.3250 after UK CPI data
GBP/USD builds on six consecutive days of gains and trades at its highest level since early October above 1.2350 as the US Dollar selloff resumes on Wednesday. The data from the UK showed that the annual CPI inflation softened to 2.6% in March from 2.8% in February but had little impact on Pound Sterling.
BoC set to leave interest rate unchanged amid rising inflation and US trade war
All the attention is expected to be on the Bank of Canada this Wednesday as market experts widely anticipate the central bank to maintain its interest rate at 2.75%, halting seven consecutive interest rate cuts.
Future-proofing portfolios: A playbook for tariff and recession risks
It does seem like we will be talking tariffs for a while. And if tariffs stay — in some shape or form — even after negotiations, we’ll likely be talking about recession too. Higher input costs, persistent inflation, and tighter monetary policy are already weighing on global growth.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.