Still expecting dollar to depreciate over the medium-term
US financial markets have seen a remarkable rebound in May, as signs of progress in trade negotiations and a more conciliatory approach from the White House has emerged. The dollar has appreciated to $1.12 against the euro, vs a $1.15 peak in April. However, the Trump administration’s 10% baseline tariffs, and 30% on China, remain in place and their negative impact on the US economy has yet to be fully felt or become apparent in macroeconomic data. There is also the unresolved question of how the US will fund the enormous Federal deficit, expected to equal 6% of GDP in 2025, amidst signs of strain in the Treasury market. It’s also worth remembering that by any historical standard, or measure of purchasing power parity, the dollar looks overvalued. So despite the rally this week, we are sticking with our view the dollar will depreciate gradually through 2025, likely to trade in a $1.15-$1.20 range by year end.
Read the weekly in full here: