Chart of the week: stabilising?
Data-driven insights and analysis from our investment team every week.
The U.S. dollar has experienced a turbulent year. In the latter half of last year, it appeared poised to reach parity with the euro. However, since year-end, it weakened significantly – approaching the 1.20 mark. More recently, that downward trend has slowed. Over the past month, the dollar has moved more sideways, and in the last week, it has regained some ground.
This rebound aligns with encouraging developments in global trade talks. Notably, the U.S. has reached agreements on tariff policy with both Japan and the euro area. These developments toward greater policy clarity have helped support the dollar. Additionally, shifting expectations around global growth may be playing a role. As tariffs arise, markets are reassessing the impact on economies that export heavily to the U.S. – including the euro area. If this results in a wider growth gap in favour of the U.S., it could support the dollar further.
That said, one key risk remains: Federal Reserve policy. Political pressure for rate cuts in the U.S. could narrow the interest rate gap with other economies, potentially weighing on the exchange rate. For now, it appears much of the dollar’s adjustment may be complete. From here, the focus turns to the data – especially trends in growth and interest rates in the U.S. relative to the rest of the world.
