Market Update – June 26, 2025: USD Weakness Takes Centre Stage

With growing concern over Fed independence and a quieter greenback, the market narrative is shifting decisively in favour of a softer USD.

Dollar Sinks to Multi-Year Lows on Fed Uncertainty

The U.S. dollar is sliding trading near its weakest levels since early 2021. Its decline accelerated following reports that President Trump is considering an early replacement for Fed Chair Powell, an implicit signal of a more dovish shift.

• Dollar Index (DXY): Fell to a three-year low after dropping ~0.6% on the news.

• FX markets: Euro and pound up ~0.7%; Swiss franc and yen also strong, with EUR/USD at its highest since 2021 and USD/JPY recently breaching the 143 level.

Key Drivers Behind the Move

1. Political noise around Fed leadership

Reports of Trump weighing a Powell replacement ahead of schedule potentially by September have triggered fears of politically driven rate cuts, undermining Fed credibility.

2. Dovish undertones from policymakers

Powell’s recent congressional remarks were cautious no commitment to cuts yet, but openness to action if inflation cools. Markets have interpreted this as room for easing.

3. Safe-haven capital rotation into other currencies

The euro, pound, and several Asian currencies are capitalizing spurred by USD weakness, tariff uncertainty, and geopolitical shifts .

Nhìn về phía trước

• Data Watch: Durable goods, PCE inflation, jobs reports remain pivotal. Cooling data may reinforce market bets on July rate cuts .

• Geopolitics & Tariffs: July 9 deadline on U.S.-EU tariffs looms—any breakdown in talks could complicate the narrative .

• Fed Signals: Market attention will pivot back to Powell’s next testimony and July Fed meeting any shift toward evidence-based dovishness will solidify USD softness.

Conclusion

The confluence of political pressure on the Fed, dovish tones from policymakers, and weak technical signals has triggered a broad-based retreat in the U.S. dollar. Other major currencies and EM assets are enjoying the tailwind, while gold and U.S. equities are finding relative footing. The next data prints and Fed communications will be pivotal. For now, the message is clear: USD fatigue is real and it’s reshaping portfolio flows across the globe.

Till next time all of you trade safe!

By James Trescothick
Head of Market Research and Analysis

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