💵 Dollar Faces More Weakness Beyond August on Fed Rate Cuts and Trump’s Battle with Central Bank

The US dollar is losing momentum after a brief rebound in July, as global investors brace for interest rate cuts and heightened political uncertainty fueled by Donald Trump’s clashes with the Federal Reserve. Analysts warn that these combined forces could undermine the greenback’s safe-haven appeal in the coming months.

📉 Dollar Retreats After Temporary Rally

In August 2025, the Bloomberg Dollar Spot Index slid by 1.6%, erasing part of its 2.7% July advance—the only positive month since Trump took office. Wall Street forecasters now expect the US dollar to continue its downtrend, with estimates pointing to an 8% decline this year as economic growth cools and the Fed prepares to ease policy.

⚖️ Trump vs The Fed: Credibility in Question

Adding pressure, Trump has openly questioned both the Federal Reserve’s credibility and the accuracy of official economic data. Earlier this week, he attempted to remove Fed Governor Lisa Cook, sparking a legal battle and raising fresh concerns about central bank independence. Market strategists warn that such moves chip away at the dollar’s safe-haven status, making it less attractive for global investors.

📊 Technical Analysis Signals More Downside

From a chart perspective, the dollar remains in a clear downtrend. It has traded below its 100-day moving average since March, with two failed breakout attempts this month reinforcing the level as strong resistance. Traders expect further weakness over the next 3–6 months, according to options pricing data.

🏦 Fed Rate Cuts on the Horizon

At the Jackson Hole Symposium, Fed Chair Jerome Powell signaled readiness to cut rates as early as the September 17 policy meeting. Current market pricing suggests an 80% chance of a quarter-point cut next month, with at least two reductions expected by year-end. By September 2026, traders are betting on a total of 125 basis points in easing. Lower yields, combined with modestly higher inflation, make the dollar less appealing to international investors.

🌍 Global Investors Increase FX Hedging

Concerns about US policy stability are prompting foreign investors to hedge their dollar exposure. Danish pension funds and insurers have already raised their hedge ratios this year, and analysts expect other global institutions—including those in Japan and Australia—to follow. With foreign investors holding roughly $32 trillion in US assets, even a modest shift in hedging strategies could lead to $1 trillion in potential dollar selling.

💡 The Bigger Picture

While US financial markets remain the world’s largest and most liquid, rising policy uncertainty under Trump’s leadership may accelerate the dollar’s decline. As one strategist put it: “We are bullish on US assets, but not on the US currency.”

Bottom line: With Fed rate cuts looming and Trump challenging the Fed’s independence, the US dollar’s outlook in late 2025 points to further weakness. For global investors, hedging strategies and diversified exposure will be key in navigating this uncertain environment. 💵