US Dollar Shows Signs of Stability After Economic Data Surprises, But Risks Loom Large

The US dollar recovered somewhat on Tuesday after losing nine days in a row. This was the worst start to a year for the dollar in more than 50 years. Even though the dollar has risen, its overall prognosis remains uncertain due to fiscal and geopolitical challenges.

Economic indicators that were greater than expected provided a momentary sense of relief. The ISM industrial PMI climbed to 49.0, indicating that industrial activity is slowing.   At the same time, the JOLTS poll revealed that job openings increased to 7.77 million, the highest in six months.   These figures helped the US Dollar Index (DXY) rebound from 96.38, its lowest level in 29 months, to around 96.85 by the middle of the day.

Federal Reserve and the Market

The US dollar fell more than 10% in the first half of 2025.  This is the most significant decrease in the first half of the year since currencies began floating in 1973.   Investors are growing wary of President Trump’s bold economic policies, such as the disputed “One Big Beautiful Bill” and tariffs that are about to go into effect and might disrupt global trade.   His July 9 deadline for new trade taxes adds to the please, given that there are only a few agreements in place so yet.

The markets now predict 125 basis points of rate cuts over the next year, bringing the yield on two-year Treasuries down to 3.71%.   Fed Chair Jerome Powell’s remarks at the ECB Forum favored a cautious approach, but they also hinted that cuts could occur later this year.

Also read: As the Dollar Weakens and The Fed’s Uncertainty Increases, Gold Shines Brighter