The US dollar says goodbye to August and slides to low levels! Weakness threatens it due to rate cuts!
The American currency is again experiencing significant volatility. According to Bloomberg, the dollar depreciated noticeably in August as investors prepared for an economic slowdown and possible interest rate cuts.
In the last month of summer, the Bloomberg Dollar Spot Index fell by 1.6%. In July, this indicator had already lost 2.7%. Under the current circumstances, Wall Street analysts expect the world’s reserve currency to drop by 8% by the end of 2025, amid a modest economic slowdown and the Federal Reserve’s readiness to reduce interest rates.
However, the situation is complicated by the fact that President Donald Trump is calling into question the authority of the central bank and the reliability of economic data. This is becoming a ticking time bomb for the dollar, thus worsening its investment appeal.
TD Securities experts suggest that the recent actions of the American administration could have long-term consequences, potentially undermining the dollar’s status as a safe-haven currency and causing risk premiums to place additional pressure on it.
According to technical analysis, a clear downward trend is evident for the US currency on the charts. Against this backdrop, traders anticipate a slight weakening of the greenback over the next three to six months. At the beginning of March 2025, the dollar’s rate fell below its 100-day moving average and has remained at that level since then. Two breakout attempts have failed. Against this background, experts find it difficult to predict the USD’s future trajectory.
It is possible that expectations of dollar weakness will prompt international investors to increase currency hedging of American assets. According to Morgan Stanley, the hedging ratios of the greenback for Danish pension funds and insurance companies have increased since the start of 2025.
Morgan Stanley analysts indicate that while they have a positive outlook on American assets, they are less optimistic about the US currency. They note that US financial markets continue to lead in size and liquidity. However, they point out that increasing political uncertainty could lead foreign investors to raise their currency risk hedging ratios, which in turn might place further pressure on the dollar.
