The US economy’s recent performance was seen by many as signalling US ‘exceptionalism’. Concerns about a US recession emerging from Trump’s tariff announcements in April led to a shift away from such trades, reducing the USD’s appeal as a safe haven.
Despite this, forecasts predict EUR/USD to reach 1.15 within 12 months, reflecting a weak US economic outlook. The USD is expected to retain its dominant role as the global reserve currency, although other currencies continue to challenge this position.
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What we’ve seen recently is a shift in sentiment, prompted initially by the fear that Trump’s move on tariffs in April might rekindle recessionary pressure in the United States. As these concerns circled through the market, many participants began to retreat from previously popular trades built on the narrative of U.S. economic strength. That sentiment had driven demand for the dollar earlier in the year, positioning it as a relatively secure asset in uncertain times.
However, that perception now appears to be softening. The projection of the euro moving toward 1.15 against the dollar in the coming year is telling. It’s not that there’s sudden confidence in European fundamentals; rather, it’s a reassessment of the U.S. picture—especially with recent data missing expectations in areas previously viewed as stable.
The dollar, though still firmly entrenched as the anchor currency for global trade and reserves, is facing increased questioning. Various economies, from Asia to the Middle East, have progressed gradually in building alternative settlements away from greenback reliance. That doesn’t mean a dramatic reshuffling is imminent, but for traders, it’s a signal worth considering when looking at medium- or long-dated positions.
Tactical Considerations in Trading
From a tactical standpoint, when consensus forecasts point to a gradual depreciation of the greenback, especially against the euro, risk-management strategies should adapt accordingly. Pricing in volatility around scheduled events—particularly U.S. inflation readings and central bank statements—becomes a priority. Hedging should be revisited routinely as macro conditions remain fluid.
Powell’s upcoming appearances and the Fed’s tone could stir up fresh volatility, particularly with real yields softening and Treasury issuance continuing at a steady clip. Giselle, from the European side, seems content with a wait-and-see approach, which might support euro carry trades for those looking further out on the curve.
Given the dynamic, we need to be more selective about entries and exits, especially in spot exposures. Emphasis shifts to options strategies that benefit from either range-trading behaviour or directional plays based on calendar spreads. There may also be opportunities in relative value positioning between currency pairs that historically correlate but are now beginning to diverge.
Lastly, as the macro picture remains clear but shaky, high-frequency indicators will play a larger role in short-term decisions. Traders would be wise to give weight to real-time expenditure data, energy prices, and employment revisions when shaping views. Momentum can turn quickly, and as we’ve seen in the past, market positioning often overreacts before returning to balance.
