Is the US dollar on the brink of a deeper collapse?
According to Investing.com, the greenback is under siege from domestic political turbulence, President Donald Trump’s aggressive fiscal policies, and mounting pressure on the Federal Reserve, all while global markets brace for critical jobs data and Fed Chair Jerome Powell’s next steps.
Confidence in the US dollar has eroded significantly. The dollar index, or DXY, is languishing near 97, a level not seen in three years. This marks a break below key technical support, hinting at further weakness.
Trump has ramped up his criticism of the Federal Reserve. He’s openly called for a drastic cut in interest rates and even floated replacing Powell with a more compliant chair.
This push for a dovish Fed leader has sparked fears over the central bank’s independence. Reports suggest a successor to Powell could be named soon, unsettling markets further.
Trump’s rhetoric isn’t limited to monetary policy. His recent $4.2 trillion tax cut and spending package, passed by the Senate, is projected by the Congressional Budget Office to balloon the budget deficit by $3.3 trillion over the next decade. For investors wary of government overreach, this fiscal recklessness is a red flag.
Beyond domestic policy, Trump’s foreign policy stance is also dragging on the dollar. His sharp words toward Iran and renewed trade spats with Canada over a digital services tax—despite Canada’s reversal and resumed talks—have dampened global risk appetite.
Markets remain jittery over potential new tariffs after July 9, 2025. This lingering uncertainty is curbing demand for the dollar as a haven.
Meanwhile, macroeconomic data offers mixed signals. May’s core PCE inflation came in hotter than expected at 2.7% year-over-year, pushing bond yields up, yet inflation expectations remain anchored, as seen in declining University of Michigan surveys.
This week’s nonfarm payrolls report could be a game-changer. A weakening labor market might nudge the Fed closer to a rate cut, with markets already pricing a 91.5% chance of a 25 basis point reduction in September.
Such a cut would likely pile more pressure on the DXY, which faces the next support level at 96.25. If the index holds at 97, resistance at 97.65 could come into play, but a break above 98 is needed for any neutral outlook.
Trump’s own words aren’t helping the dollar’s case. On Fox News, he insisted that “the Fed should cut” rates dramatically. For free-market advocates, this meddling in monetary policy reeks of dangerous overreach.
Fed Chair Jerome Powell, speaking in Congress, hinted that a rate cut remains possible if inflation doesn’t spike this summer. This cautious stance keeps markets on edge.
Looking ahead, employment figures, inflation data, and Trump’s post-July 9 statements will steer the dollar’s path. Structural issues like the widening deficit and trade uncertainties suggest the greenback’s weakness may persist. For wealth builders, this is a moment to watch closely—consider hedging currency exposure or eyeing assets less tied to dollar volatility.