empty
03.04.2025 09:12 AM
Why Is the Dollar Falling If Tariff Issues Affect Everyone? (Correction Likely for GBP/USD and EUR/USD After Sharp Rally)

The U.S. dollar had recently managed to stay above the key 104.00 mark on the ICE index, giving hope that a further decline might be avoided. But why did it tumble against other major currencies, especially considering that trade tariffs should also negatively impact the countries targeted by them?

Yes, this might seem odd at first glance, but there are clear reasons behind it, and they are likely to continue weighing on the dollar until the situation stabilizes.

As stated in a previous article, had Trump not introduced anything beyond the initially announced tariffs, the dollar might have received noticeable support yesterday. But that didn't happen. Instead, the U.S. president went beyond previously priced-in measures on the Forex market, equity indices, and Treasury yields. In addition to a base tariff of 10%—a more moderate figure than the previously floated 20%, which would have been seen as a positive—he announced additional tariffs for certain countries. According to Evercore ISI, the new weighted average tariff rate may rise to 29% after all new tariffs are implemented, the highest in over a century. This means that, collectively, the U.S. is imposing significantly higher trade barriers than initially expected.

Fears of a full-blown economic crisis and recession in the U.S. have driven investors into Treasuries, causing yields to plunge and adding downward pressure on the dollar. This decline in the Forex market is not due to strength in other currencies but rather the dollar's weakness. For example, the euro's rise contradicts the eurozone's economic issues. According to recent data, declining inflation raises the likelihood of further interest rate cuts—clearly a bearish factor for the euro versus the dollar, which might eventually find support on expectations of rate hikes if inflation picks up later this year.

In short, the dollar's drop is mostly an emotional reaction. This decline may be short-lived, ending once there's more clarity on the actual U.S. tariff rates and the retaliatory measures from trade partners. As mentioned above, fear of the unknown is pushing the dollar down. However, this decline could benefit the U.S., as it improves the competitiveness of American exports, which could strengthen the economy in the long run. In the meantime, speculators will likely take full advantage of the "tariff reality" before entering the market again at lower, more favorable price levels.

Outlook for Today:

This image is no longer relevant

This image is no longer relevant

GBP/USD

The pair is trading above the 1.3100 level. If it fails to hold above this mark, a pullback toward 1.3035 and then 1.3000 is likely.

EUR/USD

The pair is trading above the 1.0880 level. If it fails to stay above this level, a downward correction toward 1.0940 and then 1.0900 is possible.

Pati Gani,
Analytical expert of InstaForex
© 2007-2025
Summary
Urgency
Analytic
Viktor Vasilevsky
Start trade
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

EUR/USD Weekly Preview: ISM Services, ULC, and Fed Signals

The upcoming week is not packed with major events for the EUR/USD pair. Nevertheless, the market will likely react sharply even to secondary macroeconomic reports from the U.S. This

Irina Manzenko 00:37 2025-08-04 UTC+2

XAU/USD. Analysis and Forecast

Today, gold is attempting to regain positive momentum for the second consecutive day. On Wednesday, Federal Reserve Chair Jerome Powell disappointed those expecting an immediate rate cut, noting that

Irina Yanina 13:13 2025-08-01 UTC+2

Trump Resumes Criticism of Federal Reserve Chair Jerome Powell

Yesterday, President Donald Trump renewed his criticism of Federal Reserve Chair Jerome Powell after the central bank chose not to cut interest rates. Trump wrote on Thursday via his social

Jakub Novak 11:00 2025-08-01 UTC+2

Trump Crashes the Markets. U.S. Employment Report in Focus (EUR/USD and AUD/USD May Resume Their Decline)

The U.S. president remains the world's primary source of market-moving headlines, sending financial markets swinging in both directions. On Thursday, market participants eagerly priced in Donald Trump's personal tariff victory

Pati Gani 10:00 2025-08-01 UTC+2

The Market Tumbled Off Its Peak

What is driving the S&P 500 toward the stars? Artificial intelligence? The strength of the U.S. economy? Or the success of U.S. trade deals? Trading in American stocks

Marek Petkovich 08:43 2025-08-01 UTC+2

What to Pay Attention to on August 1? A Breakdown of Fundamental Events for Beginners

There are a few macroeconomic releases scheduled for Friday, but all of them are highly important. Let's begin with the Consumer Price Index (CPI) in the Eurozone. Just six months

Paolo Greco 07:29 2025-08-01 UTC+2

GBP/USD Overview – August 1: Does the Dollar Have Long-Term Potential?

This week, the GBP/USD currency pair has focused on just one thing: declining. The drop in the British pound began last week, and at the time, we concluded that this

Paolo Greco 04:42 2025-08-01 UTC+2

EUR/USD Overview – August 1: The Market Shoots Itself in the Foot Again

The EUR/USD currency pair maintained its bearish tone on Wednesday and took a brief pause on Thursday. On Wednesday evening, we witnessed another surge in the U.S. dollar, which

Paolo Greco 04:42 2025-08-01 UTC+2

Powell's Doubts Disappoint the Market

On Wednesday evening, the Federal Reserve announced the outcome of its fifth meeting of the year. No significant decisions were made, yet the market once again created problems for itself

Chin Zhao 00:32 2025-08-01 UTC+2

The Dollar Advances on All Fronts

The good old days are returning to Forex! The international currency market is gradually getting used to Donald Trump's threats and trade deals, and once again turns its full attention

Marek Petkovich 00:32 2025-08-01 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.