The U.S. dollar is expected to continue to weaken in the coming months after falling nearly 10% this year, making it the worst-performing major currency. Key factors include concerns about political interference in the Fed, the inflationary impact of tariffs and the U.S. government’s massive fiscal policy.
A Reuters poll found that nearly 80% of currency strategists believe that the dollar’s short position will remain or increase until the end of September, with the market fully expecting two rate cuts by the Fed this year and perhaps another in early 2026. However, there are also warnings that the one-sided market position could pose the risk of a sharp correction.
Medium-term forecasts show the euro strengthening, gradually strengthening from $1.17 to $1.20 within a year, its highest level since 2021. This is in line with continued expectations of dollar weakness and looser Fed policy.
In the political context, President Trump's pressure on Fed Chairman Jerome Powell and attempts to remove Governor Lisa Cook have raised concerns about the Fed's independence. Trump's proposal to appoint a pro-rate cut figure and use presidential power to fire Fed leadership is seen as testing the limits of the world's most influential financial institution.
