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WEEKLY RECAP

U.S. jobs surge: June added 147,000 jobs (beat forecasts), unemployment fell to 4.1% despite weak private payrolls.
U.S. stocks hit records: S&P 500 & Nasdaq closed at all-time highs for second straight week.
U.S.-Vietnam trade deal: Trump secured agreement days before July 9 tariff deadline.
ECB inflation caution: Eurozone hit 2% inflation target, but Lagarde signaled delayed rate cuts.
Japan-U.S. tariff risk: Trade talks stalled, risking 24-35% tariffs if no deal by July 9.

WEEKLY AHEAD

July 8, 2025, China National Bureau of Statistics, Consumer Price Index (CPI) (June)
July 8, 2025, China National Bureau of Statistics, Producer Price Index (PPI) (June)
July 9, 2025, USA Bureau of Labor Statistics, Consumer Price Index (CPI) (June)
July 10, 2025, USA Bureau of Labor Statistics, Producer Price Index (PPI) (June)
July 11, 2025, USA Bureau of Labor Statistics, Initial Jobless Claims (Weekly)

MAJOR MARKETS

Name

Dow Jones

S&P 500

Nasdaq

Nikkei 225

HSI

SHI

Last Close

44,828.53

6,279.35

20,601.10

39,810.88

23,916.06

3,472.32

7D%

2.30%

1.72%

1.62%

-0.85%

-1.52%

1.40%

THOUGHTS OF THE WEEK

Despite a swift rebound in U.S. equities and bond markets following early-2025 volatility triggered by Trump tariff policies, the U.S. dollar has continued its descent. The dollar index (DXY) has plummeted 10% since January 2025, hitting lows not seen since 2022. This divergence presents a critical puzzle: Why has the world’s reserve currency failed to recover alongside other dollar-denominated assets? Understanding this anomaly requires examining structural dollar dynamics, policy impacts, and global confidence shifts.

I. Historical Context & Dollar Fundamentals

The DXY Framework and Structural Drivers

The dollar index measures USD strength against six major currencies (EUR 57.5%, JPY 13.6%, GBP 11.9%, CAD 9.1%, SEK 4.2%, CHF 3.6%). Post-1999, it has experienced five distinct phases:

Period

1999-2001

2002-2008

2008-2014

2015-2020

2021-2024

Driver

Dot-com boom

Emerging markets rise

Safe-haven demand during GFC

Fed tightening cycle

Post-pandemic hawkish policy

DXY Trend

↑

↓

→

↑

Supply-Demand Dynamics:

Supply Pressures: Chronic trade deficits ($886B in 2024), Fed easing, and fiscal deficits (projected 6.2% of GDP in 2025)
Demand Drivers: Global trade settlement (75% USD-denominated), central bank reserves (59% USD share), and dollar asset inflows

II. The 2025 Decline: Triggers and Amplifiers

Trump Policy Uncertainty and Confidence Erosion

The dollar’s 10% surge (Sep 2024-Jan 2025) on “America Great Again” optimism reversed sharply due to:

Tariff Shocks: 10-25% levies on $300B imports triggering trade retaliation
Fiscal Expansion: Tax cuts + defense spending widening deficits to $1.9T
Institutional Erosion: Goldman Sachs reports 17% drop in foreign Treasury holdings YTD

“Trump’s policies transformed dollar strength from an economic phenomenon to a confidence crisis,” notes former Fed economist David Wilcox. The DXY slide accelerated as sovereign funds from BRICS nations reduced dollar allocations by 3.2% in Q1 2025.

III. Future Outlook: Pressures vs. Pillars

Why Dollar Hegemony Endures (For Now)

Bearish Forces:

Political uncertainty (2025 Policy Uncertainty Index at 210 vs. 150 avg)
Accelerating dedollarization (38 bilateral non-USD trade pacts since 2023)
Fed-Biden policy divergence
Bullish Anchors:

Growth

Policy Rate

2025 Easing

U.S.

2.4% (Q2)

4.5%

50bps

Eurozone

0.7% (Q2)

2.0%

150bps

Key Stabilizers:

Treasury Secretary Betsant’s strong-dollar advocacy blocking radical proposals
AI-driven capital inflows ($128B into U.S. tech Q2 2025)
Lack of viable alternatives (Eurozone fragmentation risk, yuan inconvertibility)

IV. Global Realignment: Challengers to Dollar Hegemony

Euro’s Opportunistic Resilience

Despite ECB rate cuts (deposit rate at 2.0%), the EUR gained against USD due to:

Upwardly revised 1.0% 2025 Eurozone growth
€750B recovery fund and German corporate subsidies
Relative policy stability vs. U.S. turbulence

RMB’s Limited Ascendancy

China counters tariffs via:

Domestic stimulus: SME subsidies and export quotas
Currency management: Allowing CNY depreciation to offset tariffs (as in 2018-19, when it fell 10%).

However, capital controls and dumping fears constrain RMB internationalization.

De-Dollarization Momentum

Bilateral Settlements: BRICS promoting local currency trade
Diversification: 46 central banks actively reducing USD reserves
Structural Hurdles: No credible alternative; USD still backs ~60% of global trade

CHART OF THE WEEK

V Outlook and Strategic Implications

Scenario Analysis for H2 2025–2026

Scenario

Bullish USD

Bearish USD

Baseline

Triggers

Tariff pause (Jul 9); >250k NFP; geopolitical crisis

Fed September cut + tariff renewal; growth <1%

Gradual cuts; contained inflation

DXY Range

100–103

<95

96–99

Long-Term Structural Shifts

Rate Convergence: Fed funds likely falling to 3.4% by 2027 vs. ECB’s floor of ~2%
Debt Sustainability: U.S. interest expenses may hit 20% of revenues by 2026
Tech Leadership: AI dominance (e.g., U.S. chip controls) could attract capital inflows

Investor Strategies

Defensive: Gold + Nordic currencies (low volatility)
Tactical: Short USD rebounds in 96–100 DXY range
Long-Term: U.S. AI equities (tech moat) and EM Local Currency Debt (yield advantage)

DISCLAIMER

Chart of The Week: Sources: Bloomberg, Coindesk, Cointelegraph, Forbes, Rados.io, Linux Research

Market Cap & Trading Vol.: Sources: Coinmarketcap, Linux Research

Thought of The Week: Sources: AON, Bloomberg, Blockchain.com, CCN, Coindesk, Cointelegraph, Ethereum World News, Gemini, Insurance Journal, Los Angeles & San Francisco Daily Journal, Linux Research

Week Ahead: Sources: FxStreet.com, Linux Research

Weekly Recap: Sources: FxStreet.com, Linux Research

Past performance does not guarantee future results.

Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any cryptocurrencies. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

Unless otherwise stated, all data is as of October 7, 2024 or as of most recently available.