More Weakness Ahead for the Dollar in H2 2025?
The first half of 2025 for the U.S. dollar was marked by high volatility, culminating in a significant decline during the early months of the year. On one hand, growing concerns over public finances and, on the other, the new administration’s tariff policies led to a loss of confidence among many international investors. In this context, the Dollar Index fell below the 100-point threshold last April, for the first time since early 2022.
Overall, however, a still-positive differential in real yields and an equity risk premium in favor of the U.S. helped prevent the dollar from plunging further. But what lies ahead for the rest of the year?
According to analysts, the outlook points to further weakening, also driven by a more accommodative monetary policy stance from the Federal Reserve. The extent of this weakness will depend on how the geopolitical landscape evolves and on the strength of the economic recovery in Asia and Europe.
Bank of America analysts believe the downside for the greenback is limited, as the effect of Fed rate cuts will be partly offset by global uncertainty and the sluggish recovery in Europe and Asia. J.P. Morgan notes that the dollar remains significantly overvalued relative to historical averages and expects a gradual weakening in the second half of 2025, due to its overbought condition and structural risks tied to the U.S. trade deficit.
In conclusion, the second half of 2025 is likely to see a moderately weaker dollar compared to the highs at the start of the year, though not a collapse, supported by still relatively high U.S. interest rates.
