AI Summary
Show More
Quickly grasp the article's content and gauge market sentiment in just 30 seconds!
Disclaimer: Please note that Bybit Gold & FX has been renamed to Bybit TradFi as of June 2025. Bybit TradFi is powered by Infra Capital (Mauritius FSC licensed).
Key Highlights:
Trade the dollar trend with Bybit with MT5.
The US dollar is facing its biggest test in years. Since President Trump returned to office, markets have struggled. The S&P 500 recorded its worst start under a new president since 1928. At the same time, the US dollar is falling — not just against one or two currencies, but broadly.
Normally, when stock markets fall, the dollar gains as a “safe-haven” asset. But this time is different, as both stocks and the dollar are dropping, which is rare and worrying. Investors are leaving the dollar and moving into alternatives like the euro (EUR), Japanese yen (JPY), gold and Bitcoin (BTC).
Example of negative S&P 500-Dollar correlation. S&P 500 dropped while the Dollar rose — July to October 2023 correction period.
One of the biggest reasons for the dollar's current weakness is fear. Trump’s aggressive trade stance is isolating the US economy, and investors are worried about new tariffs and the long-term damage to global trade relationships.
If Europe decides to deepen trade ties with China instead of the US, the dollar’s position as the global reserve currency could face a real threat. Additionally, Trump has criticized Federal Reserve Chairman Jerome Powell and advocated for lower interest rates. These comments hurt confidence in the independence of the Fed — a cornerstone of US financial stability.
However, if Trump were to reach a tariff agreement with China, it could signal a more cooperative approach and help stabilize investor confidence, offering much-needed support for the dollar.
For decades, China and other countries have exported goods to the United States, earning US dollars. These dollars were often reinvested in US assets such as Treasury bonds, helping support the dollar’s strength. But tariffs are upending this entire system.
When Trump’s tariffs were activated, Chinese goods became more expensive in the US This meant that China sells less, earns less profit and has fewer dollars to reinvest. Demand for the dollar falls — and so does its value.
In other words, more tariffs are actually bad for the dollar. The same goes for other export-heavy countries, such as Japan or Germany. If they see reduced access to US markets, they hold fewer dollars and invest less in US assets.
This shift in global capital flows is a major reason why the dollar is falling, and why it could fall further — unless, of course, a tariff deal is struck, which could help bring global flows back toward the dollar.
There are two key ways to track the dollar in financial markets:
The US Dollar Index (DXY) measures the dollar versus a basket of major currencies.
Globally, the EUR/USD currency pair is the most traded dollar instrument.
The DXY is currently down 8.3% in 2025, sitting at around 99.5 — its lowest level since April 2022. Meanwhile, EUR/USD is trading at around 1.134,after hitting 1.157 on April 21 — its highest level since the start of the Russia-Ukraine war in early 2022.
Technically, the dollar appears to be oversold. The relative strength index (RSI) is at 38, which is close to the “oversold” threshold of 30. Earlier in April it hit 25, which often signals a short-term rebound. The MACD indicator also shows early signs of positive momentum, as the 12-day moving average has crossed above the 26-day. If DXY can remain above 100 for a few days, it could help to build a stronger rally.
On the other hand, EUR/USD shows signs of being slightly overbought. The RSI is at around 60 (with 70 being the usual “overbought” threshold), and the MACD suggests downside risk is building. A drop below 1.13 in EUR/USD could push the dollar back up slightly. However, without fundamental support, any rebound may be short-lived.
Two major forces will shape the dollar in the weeks ahead:
Tariffs: Trump’s 90-day delay on new tariffs ends in early July 2025. If new trade barriers are introduced, expect further damage to dollar demand, as countries shift away from holding USD in reserves.
Interest Rates: The Federal Reserve is expected to cut rates at its June 18 meeting, from 4.5% to 4.25%. Rate cuts usually hurt a currency, since they reduce the return investors earn by holding it. If the Fed signals more cuts ahead, the dollar could face more selling pressure.
A positive development — such as Trump signing a tariff agreement with China before the July deadline — could help reverse the current negative trend and provide a short-term boost for the US dollar.
The US dollar is under pressure from all sides: politics, trade, interest rates and technical factors. Meanwhile, the rare combination of falling stocks and a falling dollar signals that global investors are losing confidence in their outlook on the US. The core of the problem is Trump’s aggressive trade policy and its impact on China — a longtime buyer of US assets.
As the 90-day tariff delay nears its end and the Fed prepares to lower interest rates, the dollar could face another sharp leg down. However, if a tariff deal is reached between the US and China, the dollar could regain strength, as investor sentiment improves and capital flows return.
Technical indicators also suggest that the Dollar may be slightly oversold. RSI and MACD readings point to a possible short-term bounce if conditions improve.
In the meantime, traders and investors should watch the 100 level on the DXY and the 1.13 line on EUR/USD. These will be key markers for where the dollar is heading next.