Dollar downed: Three reasons for the USD sell-off and why it cannot last

  • The US Dollar has been falling sharply, reversing previous gains.
  • Trade wars usually favor the safe-haven greenback, but this time is different. 
  • There are three main reasons for the downfall.

EUR/USD has escaped the abyss, GBP/USD seemed to have forgotten about Brexit, and even commodity currencies have rallied against the greenback.

The US dollar is a safe-haven currency, second only to the Japanese yen. US President Donald Trump has reopened the North American trade front by threatening Mexico with fresh tariffs as a punishment for allowing a migrant flow into the US. The trade war with China has also intensified with defiant rhetoric from Beijing and a threat to block rare earth exports to the US. 

Stock markets are plunging and the yen is on the rise. But the USD has suddenly turned around. 

What is going on?

1) Rate cut coming?

The deteriorating relations between the US and its peers have also sent investors to the safety of US bonds – sending yields lower. However, that has happened before the recent dollar downing. 

Bond markets have already begun pricing in a rate cut, but the greenback's fall was partially triggered by commercial banks that announced changes to their forecasts – bringing projections forward. And that was triggered by the trade war. JP Morgan has stood out with 

2) Profit-taking 

The US dollar may have gone too fast and too far and the end of the month is a perfect time to take profits – especially on a Friday. 

Retail traders and investors alike want to clean their positions before the weekend.

3) A downgrade in US consumer confidence

After GDP was downgraded on Thursday – and especially with the inflation component suffering a negative revision – the University of Michigan's consumer confidence also dropped. 

While it is not a top-tier figure, it has the privilege of having the last word of the week. A small downgrade was enough to add fuel to the fire.

Why it will not last

The greenback's status as a safe-haven has not changed. When the US economy sneezes, the rest of the world catches a cold. And that is when money flows back to the US. There has been no fundamental shift.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD: trade war optimism skews the risk to the upside

The EUR/USD pair has rallied to 1.1062 on Friday, its highest since September 20, as risk-on prevailed heading into the weekend. Reports on progress in trade talks between the US and China.


GBP/USD's rally stalls in the open as weekend headlines highlight Brexit deadlock

GBP/USD is a touch softer in the open on Monday, starting off the week in the consolidation of Friday's upside extension to the highest levels since mid-summer. 


USD/JPY consolidating bull rally into 108 handle on US/Sino trade deal optimism

USD/JPY starts out the week flat to Friday's close after markets rallied at the end of the week. Bullish geopolitical undertones in the form of a U/Sino 'phase 1' trade deal help lift USD/JPY onto the 108 handle.


US China trade deal propels US markets and yields higher and leaves dollar mixed

The US and China reached a limited trade deal on Friday a first step on the path to what both sides said could be a more comprehensive pact later in the year. President Trump said the countries reached a “very substantial phase one deal”.

Read more

Gold slumps below $1,480 as risk appetite continues to dominate the market

The bearish pressure surrounding the XAU/USD pair on Friday intensified in the last hour as markets continue to price a possible trade deal between the United States (US) and China.

Gold News

Forex Majors