Dollar Slumps Amid Mounting Uncertainty Over Trump’s Fiscal Policy and Fed Independence
Amid growing political and economic uncertainty, the U.S. dollar posted sharp losses on Tuesday, falling to its lowest level against the euro since September 2021. Investors are now closely watching for fresh signals from the Federal Reserve regarding the future path of interest rates.
The euro stabilized at $1.1808 — its highest level in nearly four years — having surged 13.8% since the beginning of 2025, marking its strongest first-half performance on record, according to data from the London Stock Exchange Group. The British pound also remained near a three-and-a-half-year high at $1.3739, while the Japanese yen climbed to 143.77 per dollar, up 9% since the start of the year, in its best showing since 2016.
Meanwhile, the dollar index — which tracks the greenback against a basket of major currencies — fell to 96.612 points, its lowest since February 2022, having lost more than 10% of its value in the first half of 2025.
Trump’s Fiscal Agenda Raises Alarms
The dollar’s decline comes as President Donald Trump’s proposed legislation to slash taxes and ramp up federal spending faces fierce opposition in Congress. The Congressional Budget Office has estimated the cost of the plan at $3.3 trillion, sparking widespread concern over ballooning public debt, which now stands at $36.2 trillion.
Nathan Hamilton, an analyst at Aberdeen, noted a marked drop in demand for U.S. Treasury bonds, particularly from foreign investors. "In 2025, the idea of American exceptionalism is increasingly being called into question," he said.
Trump Pressures Fed Amid Rate Dispute
On the monetary policy front, Trump has escalated his criticism of the Federal Reserve and its Chair, Jerome Powell, accusing the central bank of dragging its feet on interest rate cuts. Reports indicate that Trump recently sent Powell handwritten notes comparing U.S. rates to lower benchmarks in countries such as Japan and Denmark, urging a cut to a range between 0.5% and 1.75%.
While the president lacks the legal authority to dismiss the Fed Chair over policy disagreements, his public call for Powell’s resignation has fueled concerns about the central bank’s independence.
Markets Await Powell’s Comments and U.S. Jobs Report
Market participants are now turning their focus to the European Central Bank’s annual forum in Portugal, where Powell is scheduled to appear alongside other major central bank governors. His remarks are highly anticipated given the mounting tensions with the White House.
In this context, Goldman Sachs has revised its forecast for rate cuts, now expecting three reductions in 2025 — up from just one previously projected for December.
Attention is also shifting to the upcoming U.S. non-farm payrolls report due Thursday. Analysts expect job growth to slow to 110,000 in June from 139,000 in May, with the unemployment rate likely ticking up to 4.3%.
Trade Tensions Add to the Uncertainty
Further compounding market jitters is the stalemate in trade negotiations. With the July 9 deadline for suspending tariffs fast approaching, talks between the U.S. and its trade partners remain frozen. This uncertainty is heightening fears of renewed trade friction, adding to the pressure on the dollar and broader markets.
