The U.S. dollar typically strengthens in times of heightened political, geopolitical, and policy uncertainty. The depth and superior liquidity of U.S. financial markets ensure that the dollar remains a preferred safe-haven asset when global markets experience shocks. However, recent economic and geopolitical developments suggest that the outlook for the dollar may become increasingly complex. Will the U.S. dollar continue to weaken? Tariffs introduced by U.S. President Donald Trump have pushed the average tariff rate on goods imported into the United States to nearly 17% by the end of 2025, a sharp increase from about 2.7% at the end of 2024. According to available statistics, this marks the highest tariff level since 1935. As a result, analysts expect the aggressive tariff hikes implemented in 2025 to push U.S. inflation above 3% in the first half of 2026, exceeding the Federal Reserve’s 2% target. This could limit the Fed’s room to cut interest rates further and even raise the possibility that monetary policy tightening may resume sooner than expected in order to contain inflation. At the same time, the U.S. labor market is showing clear signs of slowing. Hiring activity and the pace of new job creation have fallen to multi-year lows. […]
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