US Dollar Index Hovering at Two-Year Low

The U.S. Dollar Index (DXY), which measures the greenback's value against six major currencies, hit a two-year low of 97.193 during early Asian trading on Friday. It has since recovered and is trading at 97.6 at the time of writing.

Expectations of a Fed rate cut and trade risk aversion are taking a heavy toll on the dollar.

Soft U.S. inflation data and producer price index (PPI) data this week have heightened expectations that the Fed will cut interest rates by 25 basis points in September. The Fed is scheduled to hold its next policy meeting on June 18.

The U.S. and China have announced a framework for an agreement on bilateral tariffs. But investor doubts about the durability of a modest U.S.-China trade deal, coupled with Trump’s threat to impose unilateral tariffs on most trading partners starting June 9, have undermined investor confidence in the ability of U.S. negotiators to reach a major deal.

Meanwhile, even though underlying inflation in the U.S. has been slower than expected for the fourth straight month, there are concerns that the U.S. could see a surge in inflation and begin a slide into recession amid Trump’s sweeping import tariffs.

Goldman Sachs economists estimate that U.S. inflation will rise to around 4% later this year, with tariffs accounting for about half of that.

Concerns about the outlook for the U.S. economy have fueled selling of the dollar and pushed the dollar index to a two-year low.

The dollar has fallen more than 9% so far in 2025. Wall Street strategists warn that the dollar still has room to fall further, in line with the view of speculative traders tracked by the U.S. Commodity Futures Trading Commission (CFTC), who hold about $12.2 billion in bets that the dollar will depreciate further.

Source: TradingView

On Thursday, President Trump announced that he would expand steel tariffs to a range of imported home appliances, including dishwashers, washing machines, refrigerators, etc., and the tariffs will take effect later this month.

Helen Given, a foreign exchange trader at Monex Inc., said Trump's renewed tariff threats have raised concerns about the U.S. economy, gradually leading to increased bets on the Federal Reserve to ease policy. She also said the dollar index could fall further by 5% to 6% this year.

Meanwhile, Paul Tudor Jones, founder of macro hedge fund Tudor Investment Corp., said the dollar could fall 10% in a year as he expects short-term interest rates to fall "substantially" next year.