US Dollar Outlook: Trump Comments Drive DXY Down, Euro, Gold, Bitcoin Higher

Dollar Tumbles as Trade and Rate Fears Recede

The U.S. dollar closed lower on Friday, capping its worst weekly performance in over a year. The U.S. Dollar Index (DXY) fell 0.6% on the day to 107.43, down 1.83% for the week—the steepest decline since November 2023.

This retreat was driven by easing fears of aggressive tariffs and President Donald Trump’s renewed call for the Federal Reserve to cut interest rates. Markets had previously priced in the possibility of inflationary pressures from tariffs on imports from China, Canada, Mexico, and the eurozone, which had lifted Treasury yields and supported the dollar.

However, Trump’s remarks about a “friendly” conversation with Chinese President Xi Jinping and optimism over a potential trade deal shifted sentiment sharply.

Treasury Yields Hold Steady as Markets Eye Fed Policy

U.S. Treasury yields moved only slightly on Friday as investors weighed Trump’s comments and looked ahead to next week’s Federal Reserve policy meeting. The 10-year Treasury yield dipped by 2 basis points to 4.619%, while the 2-year yield edged lower to 4.266%.

While the Fed is widely expected to leave rates unchanged, traders are keenly focused on signals regarding future rate cuts. Trump’s push for global rate reductions has added intrigue to the meeting, as markets assess the potential for a more accommodative monetary stance if inflation continues to cool.

Euro Surges on Growth Hopes as Pound Rebounds

The euro rose 0.77% to $1.0495 on Friday, gaining 2.18% for the week—its best weekly performance since July 2023. Eurozone business activity data pointed to a modest recovery, with stable growth in the services sector and a gradual easing of manufacturing contraction. These signs of resilience helped bolster the single currency. Meanwhile, the British pound advanced 1% on Friday, posting a weekly gain of 2.5%. This marked a sharp recovery for sterling, which had suffered three consecutive weeks of losses before the release of stronger-than-expected UK economic data.

Yen Strengthens as Bank of Japan Tightens Policy

The Japanese yen posted modest gains after the Bank of Japan raised interest rates to their highest level since the 2008 global financial crisis. BOJ Governor Kazuo Ueda reiterated the central bank’s commitment to tackling inflation and hinted at additional rate hikes, although he provided few details on the timing or pace of future adjustments.

Gold Shines Bright as Dollar Weakens

Gold prices surged over 1% on Friday, closing in on October highs. The dollar’s decline, combined with lingering uncertainties over trade policy and inflation, drove investors toward the safe-haven asset. Gold remains an appealing hedge against inflation, particularly in a low-interest-rate environment, with traders positioning for further upside if tariff or rate-cut announcements materialize.

Bitcoin Rallies on Trump’s Crypto Policy Push

Bitcoin rose 2.48% to $105,678.69, supported by news that President Trump is forming a task force to regulate digital assets and explore a national cryptocurrency stockpile. This policy shift signals a renewed focus on digital finance, spurring optimism for the cryptocurrency market.

Dollar Outlook Remains Bearish in Near Term

The U.S. Dollar Index faces further downside pressure in the near term as easing trade tensions and Trump’s push for Federal Reserve rate cuts weigh on sentiment. Should the Fed hint at a more dovish policy stance during its upcoming meeting, the dollar could experience additional weakness.

However, any surprise developments, such as stronger-than-expected economic data or a breakdown in trade negotiations, could offer short-term support. For now, the path of least resistance appears bearish as traders reduce safe-haven flows and position for lower yields.

More Information in our Economic Calendar.