According to the available data, the dollar index fell by 10 percent in the first six months of 2025. year, which is the worst result from the Bretton Woods system, which the dollar binds for the golden substrate, writes index.hr.
This decline comes in the moment when the Senate prepares the adoption of the Trump’s tax package called “One Big Beautiful Bill Act”, which includes tax reliefs, but also the Billy Budget Deficit in the next decade – which further presses US currency.
Messy trade policy
Usually, import duties strengthen the currency, but the Trump’s unpredictable trade strategy, with growing public debt and pressures to lower the interest rates, had the opposite effect – the dollar weak.
In April, Trump caused chaos in the global trade system by introducing so-called “reciprocal customs”, adapted to each country individually, with the explanation that the United States is suffering unjust obstacles in world trade.
Due to market earthquakes and fear of recession, Trump has temporarily pauses the application of customs in 90 days to give space for negotiations. The deadline is not fixed and depends on the progress of negotiations. However, talks with different countries often suddenly fail – for example, Trump broke negotiations with Canada due to their Digital Service Law, then withdrew.
Political tactics
The Trump Allies claim that it is a deliberate pressure and destabilization strategy, which serves as a negotiating tactic.
One of the goals of the Trump Policy “America First” is the protection of domestic production, which weaker dollar goes in favor. However, the effect could be annulled by the countermeasures of other countries.
Dollar value drop – as a world backup currency – there are global consequences: multinational companies operating in the United States now have less earnings when they are converted into their currencies.
Pressure on the federal reserves
Another key factor of weakening dollars is Trump’s unconventional behavior towards monetary policy, including direct pressure on the independence of the FED.
Trump openly criticized the President of the Fed Jerome Powell, calling him “stupid” and “stubborn”, with the claims that high interest rates cost US $ 1 billion.
The current key interest rate of the FED is between 4.25 and 4.50 percent, while Trump asks for it to be reduced by as much as three percentage points.
Lower interest rates, however, further weakened the dollar, although the Fed plant delays their reduction because he wants to see if customs will re-encourage inflation, which in recent months have been declining.
Fear of inflation
“So far, we are in a position that we can wait and observe how the economy will develop before changing our policy,” Powell said 24. June before the Committee for Financial Services.
“Inflation caused by customs will probably boost,” he added. “We don’t know how much part of it will fall into consumers. We have to wait and see.”
Powell admitted that inflation may not grow as much as expected, which could accelerate the reduction in interest rates. He also said that a sharp increase in unemployment could cause a fed to a faster reaction.
“If inflation isn’t as strong as we think, it would mean that you need to lower the interest earlier,” he said. But when they asked him if that could happen in July, he refused to answer.
(Vijesti.ba)
