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The U.S. dollar remains under pressure. What's next, and what are its prospects?
The trade war initiated by Donald Trump has significantly damaged the reputation of the U.S. dollar, which has already been in poor shape for some time. The aggressive changes to the foundations of the national economy and the use of the dollar as a financial weapon against Russia have led to a collapse in trust. This was demonstrated during the most recent 20-year Treasury bond auction, in which the U.S. Treasury had to essentially buy itself. The market took note and responded with decreased demand for dollar-denominated assets.
Of course, the U.S. economy needs a weaker dollar to make domestically produced goods more competitive on global markets. But Trump does not want the dollar's decline in prestige and demand. Meanwhile, his sharp geopolitical maneuvers and tariff wars risk pushing the U.S. into recession—something that might be confirmed by this week's revised Q1 GDP data, which is expected to show negative growth for the first time since autumn 2022.
Another threat looming over the dollar is the anticipated sharp rise in U.S. national debt. The Senate is soon expected to debate a massive tax and budget package previously proposed by Trump, which would significantly increase the federal deficit. Forecasts suggest the bill could add approximately $3.8 trillion to the current national debt of $36.2 trillion over the next decade.
Ironically, the 47th president—once a vocal opponent of government overspending—is now effectively reverting to the same financial model that brought the U.S. to the brink of crisis and could trigger a full-scale financial meltdown.
In this environment, the dollar is clearly set to face challenges, and the Treasury's bond sales will likely become less appealing to foreign buyers who once eagerly absorbed them. As a result, the U.S. Dollar Index (DXY) could potentially fall to levels last seen in 2021, around 90 points.
Dollar-denominated assets are also expected to lose appeal among global investors. Moreover, there are serious doubts that the U.S. government's effort to reindustrialize the economy—shifting it away from a post-industrial model—can succeed, especially in the short term. This means interest in the dollar may steadily decline over time.
Will other currencies such as the euro or the pound benefit relative to the dollar?
That seems unlikely. Europe is experiencing a profound crisis—both civilizational and economic. Yes, in the short term, militarization and increased defense spending could support the euro, particularly in its pair with the dollar. But meaningful growth is unlikely. Most likely, any rise will be local and limited: around 1.1500 for EUR/USD and around 1.3700 for GBP/USD. After that, a new wave of decline is expected once it becomes clear that money alone will not magically turn into tanks and aircraft. Without a robust defense industrial base, the eurozone cannot rapidly scale production—meaning we should not expect a repeat of the so-called "German economic miracle" of the WWII era.
The dollar may see a local rebound against major currencies in the short term, followed by a renewed decline. Gold also has downside potential in the context of its short-term bearish trend. Cryptocurrencies will likely remain in a sideways consolidation, constrained by localized dollar strength.
The pair is trading above the 1.3545 level. A technical drop below this level could trigger a correction toward 1.3440. The sell trigger could be a break below 1.3538.
Gold remains in a short-term downtrend, trading below 3322.00. In the context of waning trade tensions between the U.S. and its major partners, prices could decline to 3205.75. The sell trigger may be a move below 3301.19.
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