US Dollar Forecast: How Will Trump’s Trade Agenda Impact DXY, EUR/USD, and USD/JPY?

Trump’s Inauguration 2025: What Does It Mean for the Dollar, Euro, and Yen?

Donald Trump will be inaugurated for a second term as U.S. President on Monday, January 20, 2025, marking the start of another era of potential economic and trade policy changes. For currency markets, his return raises pressing questions about the future of the US Dollar Index (DXY) and its relationship with the euro and yen. With potential fiscal expansion and trade initiatives on the horizon, investors are preparing for a critical period in the forex market.

Will Fiscal Policy Drive Dollar Volatility?

Trump’s pro-growth policies, including tax reductions and deregulation, could once again take center stage. These measures have historically supported U.S. economic growth, providing short-term strength to the dollar. However, an aggressive fiscal expansion risks increasing the federal deficit, which could weigh on the dollar’s longer-term prospects.

In addition, trade policies may amplify volatility. Trump’s past use of tariffs and renegotiation of trade deals often boosted the dollar through safe-haven inflows and reduced trade deficits. Should these approaches return, the greenback may see renewed upward pressure. Yet, the broader impact on global trade might temper gains, keeping investors cautious.

Is the Euro at Risk of Further Weakness?

The euro faces challenges as Trump’s potential policies widen monetary policy differences between the U.S. Federal Reserve and the European Central Bank (ECB). While the ECB is expected to maintain ultra-loose policies, any sign of a more hawkish Federal Reserve—due to inflationary pressures—could push EUR/USD lower.

Geopolitical considerations also pose risks for the euro. Trump’s previous criticism of NATO spending and European trade practices could reignite tensions, unsettling investor confidence in the eurozone. A stronger dollar combined with these uncertainties could deepen euro losses in the months ahead.

How Might Trade Policies Influence the Yen?

The Japanese yen, widely regarded as a safe-haven currency, could experience heightened interest depending on Trump’s trade strategies. Escalating trade disputes would likely strengthen the yen as investors seek safety. On the other hand, if Trump’s policies are viewed as supportive of global economic activity, the yen may weaken against the dollar.

Interest rate differentials also matter. The Bank of Japan’s accommodative stance, contrasted with potential Fed tightening, may limit the yen’s ability to counter a rising dollar.

What Actions Should Investors Consider?

Trump’s policy agenda could create significant opportunities and risks in forex markets. While the dollar may strengthen against the euro and yen in the near term, underlying concerns about deficits and geopolitical tensions could introduce unpredictability.

Investors should closely monitor fiscal and trade developments, employ diversification strategies, and adopt disciplined risk management to position effectively for the evolving market environment.

More Information in our Economic Calendar.