Market calm helps stabilize Dollar

MG News | August 01, 2025 at 10:25 AM GMT+05:00
August 1, 2025 (MLN): The US dollar has begun to stabilize
against other major currencies in recent weeks, as record-high US policy
uncertainty starts to subside, according to Fitch Ratings.
The DXY Dollar Index a weighted average of six bilateral
exchange rates with developed market reserve currencies remains approximately
9% below its level at the end of 2024.
However, it has
recovered by around 1.5% from its low point at the end of June.
So far in 2025, most major global currencies have
strengthened against the US dollar. Developed market currencies have posted an
average (unweighted) gain of 7.8% since end-2024.
Emerging market currencies have also generally appreciated against the greenback, with the notable exception of the Turkish lira. However, recent weeks have seen downward pressure on the dollar ease, as US tariff policy becomes clearer.
This bout of dollar weakness comes after a sustained upward
trend lasting about 15 years. The DXY Index is still about 37% above its 2008
post-2000 low. Similarly, the trade-weighted Nominal Effective Exchange Rate estimated
by the BIS reflects a comparable appreciation.
Meanwhile, the US Real Effective Exchange Rate (REER)
remains approximately 5% above Fitch’s estimate of the long-term trend, as
tracked in its Macro-Prudential Risk Monitor.
Fitch’s FX projections, published in its June 2025 Global
Economic Outlook and Sovereign Data Comparator, indicate that the dollar will
strengthen moderately by year-end, with the DXY Index forecasted to rise around
2.5%.
The agency also anticipates that the Federal Reserve will
proceed with less aggressive interest rate cuts in 2025 than currently expected
by financial markets.
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