Will the Trump dollar weaken further?
The dollar has come under heavy pressure recently.
Commerzbank FX Research
04/25/2025
The dollar has come under heavy pressure recently. This is not only true against the euro; it has also lost around 7½% against the average of the G10 currencies since the beginning of the year, thereby giving up all the gains it made in the last few months of last year.
The reason for this clearly lies in the policies of the new US administration. These policies call into question the growth advantage of the US economy, the “safe haven” status of US government bonds, the status of the dollar as the world's reserve currency, and the independence of the Fed. If the US president continues his policies and further weakens these factors, the high valuation of the dollar would no longer be justified. After all, even after its recent losses, the dollar is still significantly stronger than its purchasing power would justify, for example against the euro.
The US growth advantage could come to an end
An important argument in favor of the US dollar in recent years has been the growth advantage of the US economy over most other developed economies. The US economy has weathered the coronavirus pandemic much better than the economies in other major currency areas: it did not slump as sharply when the pandemic broke out and returned to its previous growth trend more quickly than other comparable economies. This US growth advantage has been a strong argument in favor of the US dollar to date. After all, a rapidly growing economy opens up more profitable investment opportunities than a stagnating or anemic economy.
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