Currency Dollar Plummets, Gold Values Soar as Probability of Federal Reserve Rate Decrease Rises
U.S. Dollar Continues Downward Trend Amid Fed Rate Cut Expectations
The U.S. dollar has been on a downward trajectory in recent times, primarily due to expectations of Federal Reserve interest rate cuts, softer U.S. economic growth, fiscal challenges, and reduced global investor demand for U.S. assets.
In late July 2025, the dollar showed a technical rebound after the Fed signaled it might delay rate cuts, dampening expectations of near-term monetary easing. However, the greenback's resurgence was short-lived.
Key reasons for the dollar's recent decline include anticipation of 50 to 75 basis points in Fed rate cuts starting around September 2025, which tends to weaken the currency. Softer U.S. inflation data and economic growth prospects have also reduced the dollar’s safe-haven appeal.
Global factors such as foreign central banks reducing their dollar holdings (de-dollarization) and better relative performance among non-U.S. developed markets have contributed to the dollar's fall. Fiscal and political concerns, shifting investor sentiment amid geopolitical tensions, and evolving trade relations have added uncertainty and pressure.
As of early August 2025, the U.S. Dollar Index (DXY) was around 103.6 after rebounding from a recent low near 101.2. While short-term technical factors and a more hawkish Fed tone have supported a dollar bounce, medium-term fundamentals remain mixed, suggesting the dollar could continue a broadly weakening trend depending on how Fed policy and global risks evolve.
In the financial world, Japanese Finance Minister Kato recently expressed concerns about movements in the foreign exchange market.
The U.S. economy saw a slower-than-expected job growth in July, with nonfarm payrolls rising by only 73,000, weaker than expectations of 104,000. This cooling of the labor market was further indicated by the July payroll report.
On the inflation front, Jul core CPI in the Eurozone rose +2.3% y/y, right on expectations, while the Eurozone Jul CPI rose +2.0% y/y, stronger than expectations.
Meanwhile, the U.S. Jul ISM manufacturing index unexpectedly fell -1.0 to 48.0, contracting by the most in 9 months. Despite this contraction, EUR/USD rallied sharply by +1.11% on Friday.
In the commodities market, December gold closed up +51.20 (+1.53%) on Friday, while September silver closed up +0.217 (+0.59%). USD/JPY sold off sharply lower by -2.00% on Friday.
Swaps are pricing in an 18% chance of a -25 bp rate cut by the ECB at the September 11 policy meeting. The Fed may cut interest rates as soon as next month, according to speculation after the Jul payroll report.
In summary, the outlook for the USD in mid-2025 remains uncertain but tilted towards gradual weakening driven by expectations of lower U.S. interest rates and relative economic factors, with intermittent rebounds reflecting shifts in Fed communication and global risk sentiment.
Technology's role in finance is becoming increasingly significant as investors analyze data and trends to make informed decisions about investing amid unstable market conditions. For instance, advanced algorithms are being employed to predict possible impacts of Fed rate cuts on technology stocks.
Amidst the downward trend of the U.S. dollar, some experts suggest that investors may seek refuge in non-dollar assets such as technology-related investments, viewing them as promising avenues for growth and profitability.
