US Dollar shows signs of stabilisation on easing policy uncertainty: Fitch

Saturday, 2 August 2025 00:54 - - {{hitsCtrl.values.hits}}

The US Dollar has shown early signs of stabilisation against other currencies in the past few weeks, as US policy uncertainty has eased from record highs, Fitch Ratings says in its latest FX Market Monitor. The DXY Dollar Index (a weighted-average of six bilateral exchange rates with developed market countries with reserve currencies) remains about 9% lower than at end-2024, but has appreciated by about 1.5% from its trough at the end of June.

Most major economies’ currencies have strengthened against the US Dollar this year. Developed market currencies have appreciated by an (unweighted) average of 7.8% since end-2024. Emerging market currencies also have generally strengthened against the dollar, with the notable exception of the Turkish lira. But downward pressure on the dollar has eased recently as greater clarity has emerged on US tariff policy.

This year’s US Dollar weakness follows a long-term appreciation trend that has lasted for about 15 years. The DXY Index is about 37% above its 2008 post-2000 trough. The trade-weighted Nominal Effective Exchange Rate estimated by the BIS shows a similar appreciation. And the US Real Effective Exchange Rate (REER) remains about 5% higher than Fitch’s estimate of the long-run trend REER incorporated in its Macro-Prudential Risk Monitor.

FX forecasts in Fitch’s June 2025 Global Economic Outlook and Sovereign Data Comparator suggest that the US Dollar will appreciate moderately by year-end by an amount equivalent to about 2.5% on the DXY Index. Fitch expects the Federal Reserve will cut interest rates less aggressively in 2025 than financial market participants’ predictions.

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