Dollar's crown is slipping due to rapidly changing US trade policies
The dollar has sunk to its lowest in three years as rapidly changing US trade policy unsettles markets and expectations build for Federal Reserve rate cuts, fuelling outflows from the world's biggest economy.
While the dollar was higher on Friday, lifted by safe haven flows as Israel launched a strike on Iran, it was still set for its biggest weekly drop in a month.
It is also down almost 10% against a basket of major currencies this year, leaving other countries grappling with unanticipated FX moves that are having a knock-on impact on economic growth and inflation.
'There's clearly solid dollar selling,' said Kit Juckes, chief FX strategist at Societe Generale.
Here's a look at some of the biggest movers: 1/ CROWN JEWELS Scandinavia's currencies are the standout performers against the dollar so far in 2025. The Swedish crown is up 15%, its best performance at this point in the year against the US currency in at least 50 years. Norway's crown is up 13%, its best run since 2008.
Highlighting just how much of this strength stems from dollar weakness, Sweden's crown is up only 4.5% against the euro and Norway's just 2% .
Sweden is expected to cut rates this month as inflation and its economy slow, yet its currency shows no signs of weakening. In Norway, lower oil prices often temper the crown, but that dynamic has also been upended by its relationship with the dollar.
The euro, Swiss franc and Japanese yen are also among the biggest beneficiaries of the dollar's fall from grace, up roughly 10% each so far this year. But this comes at a price. Swiss inflation turned negative in May, marking the first decline in consumer prices for more than four years. The surge in the franc reduces the price of imported goods, and piles pressure on the central bank to cut rates back below 0%.
European Central Bank rate setters will also have a wary eye on the single currency, which at around $1.1533 is near its highest since 2021.
'In my heart-of-hearts we are going to get to $1.20 but we shouldn't get there too fast because it's deflationary,' said SocGen's Juckes.
Even after the recent surge, the yen remains down roughly 30% from end-2020 levels, leaving Japan to try to balance the negatives of a stronger currency with the need to demonstrate in trade talks with Washington that it is not seeking an unfair advantage from its longer-term weakness.
ASIA For years, Asian investors parked trillions of dollars in US assets such as Treasuries. US President Donald Trump's April 2 'Liberation Day' fired the starting gun for that capital to start flowing back to the world's manufacturing powerhouses, boosting their currencies.
Taiwan's dollar surged 10% over two days in May and is up nearly 10% this year, while the Korean won has gained around 8%.
Singapore's dollar, Malaysia's ringgit and Thailand's baht are all up 6% too, but China's yuan - arguably the most exposed to tariffs - has only appreciated by about 2% offshore, hemmed in by the central bank's guardrails around its onshore counterpart.
China wasn't labelled a manipulator in the US Treasury's latest currency report, but the lag in the yuan will not have gone unnoticed in Washington.
Reuters
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Al Etihad
2 hours ago
- Al Etihad
Swedish companies in UAE upbeat about growth prospects
16 June 2025 00:08 Mays Ibrahim (ABU DHABI)Seventy-one percent of Swedish companies operating in the UAE view the business climate as good or very good, according to the 2025 edition of the Business Climate Survey for Swedish Companies in the survey, released by Business Sweden in the UAE, gathered responses from 46 Swedish companies active on the mainland or in one of the UAE's more than 40 economic free revealed that 67% of Swedish companies in the Emirates expect their industry turnover to increase, and half plan to increase their investments slightly or significantly in the next 12 report's findings point to the UAE's role as a critical regional business hub, as many Swedish companies use it as a springboard into neighbouring GCC countries, as well as wider markets across the Middle East, Africa and South sentiment is dominant across businesses of all sizes, especially in the industrial segment with 68% of firms anticipating turnover key factors behind Swedish companies' success in the UAE include partnerships and relationships, sales competence and cost firms also highly appreciated personal safety, physical infrastructure, and access to quality distributors and service providers in the no company reported exposure to corruption, such as fraud or attempts of bribery from public bodies and internal firms have operated in the UAE since the 1960s, with around 200 Swedish companies now present in the to the report, the UAE remains Sweden's largest trading partner in the MENA region. In 2024, Swedish exports to the UAE grew by 33% compared to the year before, reaching $1.6 billion. Swedish direct investment flows to the UAE also saw a sharp rise to $618 million in 2023.
Khaleej Times
6 hours ago
- Khaleej Times
Wall St Week Ahead: Fed meeting in focus as investors seek rate-path hints
The Federal Reserve's balancing act between concerns about a weakening labour market and still above-target inflation will take centre stage for investors in the coming week as they weigh risks to the rally in the U.S. stock market. The benchmark S&P 500 has rebounded sharply over the past two months as worries about the impact of trade barriers on the economy have eased since President Donald Trump's "Liberation Day" announcement on April 2 sent the market plunging. The rally hit a stumbling block on Friday as stocks fell globally and investors moved to safe-haven assets after Israel launched a military strike on Iran, and Iran fired missiles in response. Major US indexes ended down over 1% on Friday, with the S&P 500 falling 1.1%. The Fed's two-day monetary policy meeting could present the next major obstacle for markets. While the US central bank is widely expected to hold interest rates steady when it announces its decision on Wednesday, investors are eager for any hints about whether the Fed might be poised to lower rates in the coming months. The fed funds rate has been at 4.25%-4.50% since the central bank last eased in December, by a quarter percentage point. "What the Fed is going to have to try to do next week is encourage the belief that they are able to act without actually promising anything," said Drew Matus, chief market strategist at MetLife Investment Management. "If they move rates lower too early before there is evidence that there is weakening in the economy that they can then point to, they raise the risk of actually boosting inflation expectations further." At its last meeting in May, the central bank said risks of both higher inflation and unemployment had risen. The Fed has a dual mandate to maintain full employment and price stability, and investors will be seeking any signs of whether officials are more concerned about one of those goals and what that means for the path of rates. One area of focus on Wednesday will be an update to Fed officials' projections about monetary policy and the economy, which were last published in March. Larry Werther, chief US economist of Daiwa Capital Markets America, will be watching estimates for unemployment. While the Fed officials' last projection was for unemployment to end 2025 at 4.4%, Werther is projecting a year-end rate of 4.6%, saying recent data including jobless claims has indicated softening in the labor market. "If the unemployment rate is expected to move higher, just aligning with what we've seen in the labour market, and inflation isn't expected to move much beyond what the Fed is projecting, then it opens the door to further easing in support of the labor market later this year," Werther said. Fed funds futures indicate markets expect two rate cuts by the end of this year, with the next one likely in September, according to LSEG data. Such bets were bolstered by benign inflation reports this week. Investors are also focused on Trump's selection to succeed Fed Chair Jerome Powell, with the president regularly urging the central bank to lower rates. Trump earlier this month said a decision on the next chair would be coming soon, although he said on Thursday that he would not fire Powell, whose term ends in May 2026. The release of monthly retail sales on Tuesday will also be in focus. Investors want to see if tariffs are leading to higher prices that pressure consumer spending. Trade developments are likely to continue to keep markets on edge, with a 90-day pause on a wide array of Trump's tariffs set to end on July 8. A trade truce this week between China and the United States offered hope that the two countries can reach a lasting resolution, but the absence of detailed terms left room for potential future conflict. The S&P 500 is up 1.6% so far this year. But the index has gained 20% since its low for the year on April 8, and is 2.7% off its record high set in February. "The market has rallied so hard, so fast," said Marta Norton, chief investment strategist at retirement and wealth services provider Empower. "There is vulnerability to anything that doesn't support that kind of benign narrative that has been established."
Al Etihad
9 hours ago
- Al Etihad
Iran-Israel tensions: Analysts optimistic about stability of oil supplies
15 June 2025 16:56 A. SREENIVASA REDDY (ABU DHABI)Most analysts remain optimistic about the stability of crude prices and the continuity of global oil shipments, especially through the Strait of Hormuz, despite escalating tensions between Iran and the conflict has fuelled market speculation, most industry analysts and trade experts continue to express confidence in the resilience of global energy trade. Their view is anchored in historical precedent, economic pragmatism, and the deeply interwoven trade relationships that characterise the Arabian Gulf Strait of Hormuz — a narrow but critical maritime corridor at the mouth of the Arabian Gulf — handles close to 30% of the world's crude and refined petroleum exports and around 20% of global LNG flows. A complete closure would undoubtedly shake global energy markets. However, most observers consider such an outcome unlikely. "While we don't yet foresee a war escalating to a Hormuz blockade, its closure would severely impact global energy flows," a Chinese oil trader told S&P Global. But despite rising tensions and military strikes between Israel and Iran, there has been no significant disruption to commercial shipping so far. Historical confrontations between the two countries have also avoided this red a note issued on June 13, JP Morgan analysts assessed the risk of Iran closing the Strait as 'very low', citing Iran's reluctance to damage its economic lifeline — especially its vital trade relationship with to S&P Global Commodity Insights, Iran pumped 3.24 million barrels per day (b/d) in May, most of which is exported to China. Any move to restrict traffic through Hormuz would not only sever this economic artery but also affect its ability to send supplies to initially reacted with concern. ICE Brent crude futures spiked 8.97% on June 13 — the sharpest single-day gain in five years. But analysts at S&P Global and Goldman Sachs expect such price volatility to be temporary, barring direct attacks on energy infrastructure. 'We've seen these spikes before. Prices jump, then retreat when it's clear that oil flows are not actually impacted,' said Richard Joswick, Head of Near-Term Oil Analysis at S&P this outlook is the presence of alternative logistics. The UAE's Habshan–Fujairah pipeline, for instance, enables crude to bypass Hormuz altogether. Long-term LNG supply contracts between China and exporters like Qatar and the UAE also offer stability and reduce reliance on spot risk insurance premiums in the Arabian Gulf, which cover ships navigating high-risk zones, remain steady at 0.05%–0.07% of vessel hull value — unchanged for 18 months. Though freight charges could rise if hostilities deepen, there is no current indication of a shipping refiners are the largest buyers of Gulf crude. 'Extreme actions could provoke responses from Asian military powers. So both Iran and Israel are likely to exercise caution,' said a Tokyo-based feedstock manager. Refiners in South Korea, Japan, and Thailand have echoed similar sentiments, underscoring confidence that the Strait of Hormuz will stay Goldman Sachs, while adjusting its geopolitical risk premium, predicts Brent crude to fall back to the $60s in 2026, assuming no long-term infrastructure damage and a compensatory output from OPEC+.In a potential escalation scenario, Goldman estimates a temporary loss of 1.75 million b/d from Iran if its export infrastructure is damaged — but believes this shortfall could be partially offset by OPEC+ spare capacity. Under such conditions, Brent could peak over $90/b, before normalising as supply recovers.S&P Global concurs that the real inflection point would be a direct disruption to exports. 'Unless exports are impacted, the price upside will fade,' its analysts noted. Joswick reinforced this by citing 2024, when similar flare-ups triggered short-term price movements that quickly reversed once it became clear supply was Pollack, vice president for policy at the Middle East Institute, noted: 'If Iran closed the Strait of Hormuz, the US would come in with all guns blazing.' Analysts warn that such a move would not only provoke military responses but would be viewed by Gulf neighbours as a direct economic threat.'There is no doubt the situation in the Arabian Gulf is very tense. We have reports that more shipowners are now exercising extra caution and are opting to stay away from the Red Sea and the Arabian Gulf,' said Jakob P Larsen, Chief Safety & Security Officer at BIMCO, the world's largest international shipping association.'There is currently no indication that Iran will seek to disrupt shipping in the Gulf, and no indication at this point that the Houthis will seek to disrupt shipping in the Red Sea. The tripwire will be the perception of the US' involvement. If the US is suddenly perceived to be involved in attacks, the risk of escalation increases significantly,' Larsen told Aletihad.'BIMCO encourages shipowners to follow developments closely and implement ship defence measures according to the industry guidance document,' he added. Meanwhile, broader OPEC+ dynamics are also at play. Eight OPEC+ member states are moving to restore 2.2 million b/d of curtailed output to regain their market share. 'We'll likely see more unwinding of voluntary cuts,' said Harry Tchiliguirian, Head of Research at Onyx Capital Advisory. This will likely have a mitigating impact on oil prices.
