empty
09.05.2025 12:28 AM
The Dollar Shot Itself in the Foot

As the first week of May comes to a close, a true spring has arrived on the financial markets. Global risk appetite is surging amid the imminent launch of U.S.-China negotiations in Switzerland, and Donald Trump is announcing his first trade deal during his second presidential term. The likely partner? The United Kingdom. Next in line are India, South Korea, and Japan. Tariffs are expected to decrease — a trend supporting EUR/USD bears.

The U.S. dollar index has fallen roughly 8% in 2025, driven by the growing realization that the United States has shot itself in the foot. For years, the U.S. economy towered over the rest of the world. Demand for U.S.-issued securities soared, and the greenback left its Forex competitors far behind. However, Donald Trump's ambition to reshape the global order has led to the erosion of American exceptionalism.

The dollar was sold off alongside equities over concerns that tariffs would accelerate inflation, cut profits, and trigger a recession, leading to higher unemployment, weaker demand, and lower corporate earnings. If import duties start coming down, the reversal could breathe new life into EUR/USD bears.

Market expectations for the Fed's rate policy

This image is no longer relevant

But is a recession in sight when U.S. nonfarm payrolls are growing by 177,000 — beating Bloomberg forecasts — and Jerome Powell insists the economy is "strong as a bull"? The price hikes might be temporary. If tariffs are reduced, everything could return to normal. Is the worst behind us? Is it time to pivot away from the "sell America" strategy and return to the good old S&P 500 and the U.S. dollar?

I wouldn't be so optimistic. According to Wall Street Journal insiders, the UK will receive reduced tariffs on steel, aluminum, and automobiles in its trade deal with the U.S., but the 10% universal tariff will remain. If the same structure applies to other countries, U.S. inflation is destined to accelerate. Meanwhile, the economy will likely slow down, if only under the pressure of the Fed's elevated interest rates.

This image is no longer relevant

A stagflationary scenario would spell trouble for both equities and the U.S. dollar. A global pullback in risk appetite would quickly kill the EUR/USD bears' attempted counterattack, especially since Washington and Beijing won't reach an agreement in a single day. Once markets realize this, the renewed enthusiasm for U.S. assets will likely fade just as quickly.

Technically, on the EUR/USD daily chart, a breakdown below the 1.128–1.138 consolidation range could prove to be a false breakout. If the "Spike and Ledge" pattern evolves into a "Fakeout-Blowoff" setup, a return of quotes to 1.133 may

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

AUD/JPY. Analysis and Forecast

The AUD/JPY pair is regaining positive momentum after a modest pullback the previous day. However, spot prices remain confined within a multi-day range due to mixed fundamental signals, trading near

Irina Yanina 14:39 2025-06-20 UTC+2

USD/CHF: The Pair Struggles to Gain Momentum Amid Conflicting Forces

At present, USD/CHF shows no clear intraday direction and fluctuates within a narrow range just above the 0.8155 level, reflecting market uncertainty during the European session. The Swiss franc

Irina Yanina 14:36 2025-06-20 UTC+2

The Euro Will Retain Its Strength and Investor Interest

During her speech, IMF Managing Director Kristalina Georgieva stated that she sees the potential for the euro to play a broader role globally.Her remarks came amid growing geopolitical instability

Jakub Novak 11:25 2025-06-20 UTC+2

Euro Slightly Rises After Lagarde's Speech

The euro saw a modest recovery after European Central Bank President Christine Lagarde stated that expanding trade within the region could help offset losses resulting from global fragmentation. Her optimistic

Jakub Novak 11:10 2025-06-20 UTC+2

Donald Trump – A Mastermind of Geopolitical Uncertainty (A Potential Correction in Oil and Gold Prices)

Six months into Donald Trump's presidency, it seems he has already thoroughly exhausted the world with his "brilliant" initiatives, groundbreaking actions aimed at making America great again, and his vivid

Pati Gani 09:49 2025-06-20 UTC+2

The Market Tries to Extinguish the Fire

Markets are digesting Donald Trump's announcement that a decision on U.S. strikes against Iran will be made within two weeks. The White House could have acted at any moment

Marek Petkovich 09:01 2025-06-20 UTC+2

What to Pay Attention to on June 20? A Breakdown of Fundamental Events for Beginners

There are very few macroeconomic reports scheduled for Friday. The only report of the day will be the UK retail sales report. No economic data will be released today

Paolo Greco 07:45 2025-06-20 UTC+2

GBP/USD Overview – June 20: The Bank of England Didn't Surprise

The GBP/USD currency pair traded relatively calmly on Thursday, given the fundamental backdrop available to the market. On Wednesday evening, the Federal Reserve announced the results of its latest meeting

Paolo Greco 07:16 2025-06-20 UTC+2

EUR/USD Overview – June 20: Summing Up the Fed Meeting

The EUR/USD currency pair traded relatively calmly on Wednesday and Thursday. Recall that the results of the latest 2025 Federal Reserve meeting were announced on Wednesday evening, but we didn't

Paolo Greco 07:16 2025-06-20 UTC+2

USD/JPY. Analysis and Forecast

The Japanese yen is showing weakness against the stronger U.S. dollar, with the USD/JPY pair reaching a new monthly high. This rise in the dollar against the yen is mainly

Irina Yanina 20:12 2025-06-19 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.