US Dollar: Cyclical drivers and de-dollarisation – Rabobank

FXStreet Insights Team FXStreet

Rabobank's Senior FX Strategist Jane Foley examines structural de-dollarisation themes alongside near-term Dollar dynamics. The de-dollarisation debate intensified after tariffs failed to trigger a traditional safe-haven bid for the Dollar and Treasuries in April 2025. Foley argues this shift will be slow and contested by US authorities, so cyclical factors like interest rate differentials and US macro resilience will continue to drive Dollar moves.

Slow de-dollarisation versus near-term support

"The debate about de-dollarisation lurched into the limelight in April 2025 after both the USD and US treasuries simultaneously failed to catch a safe haven bid following the tariff announcements from US President Trump. There is a clear incentive for several countries/regions to move away from reliance on the USD payments system meaning that the de-dollarisation debate is here to stay. This is likely to be the case almost irrespective of who wins the next US presidential election."

"That said, de-dollarisation is set to be a slow process which will meet plenty of opposition from the US Treasury. Given the time frames involved, we would argue that cyclical drivers will still move the USD in both directions."

"Since the start of the Iran war, interest rate differentials have had a significant impact on G10 FX rates. Currencies such as GBP were buoyed early on in the conflict on the back of a surge in central bank rate hike speculation. Some of this has subsequently been unwound."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD holds above 0.6950 as bullish USD caps gains

AUD/USD edges lower during the Asian session on Tuesday, stalling a two-day recovery move from a two-month low, touched last week. An extended rout in the fixed income market keeps US bond yields elevated near multi-year highs. This, along with geopolitical uncertainties, helps the US Dollar retain its bullish tone despite receding October Fed hike bets. However, expectations for another RBA rate hike this month could act as a tailwind for the Aussie.

USD/JPY rises back above 158.00 despite hawkish BoJ outlook

USD/JPY rises back above 158.00 in the early European morning on Tuesday. The pair strengthens as the Japanese Yen fails to find any inspiration from hawkish BoJ expectations and looming intervention risks. Meanwhile, geopolitical uncertainty and elevated US bond yields keep the US Dollar near its YTD high despite receding October Fed hike bets. This, in turn, helps the pair stay supported.

Gold recovers further from two-month low amid some USD profit-taking

Gold builds on its modest intraday bounce from the $4,100 neighborhood, or a two-month low, and climbs above $4,150 during the first half of the European session. The US Dollar pauses for a breather following the recent strong rally from the September monthly swing low and offers some support to the precious metal. Adding to this, receding bets on an October Fed rate hike benefit the non-yielding bullion.

Ripple and Stellar weaken as derivatives positioning fades

Ripple (XRP) and Stellar (XLM) face pressure trading below $1.499 and $0.220, respectively, on Tuesday after a modest correction at the start of the week. Traders should be cautious as weakening derivatives metrics and fading bullish momentum suggest further corrections for XRP and XLM. Derivatives data shows a weakening and cautious signal among traders.

Europe in focus as French and Spanish politics drive sentiment

There are no tier-1 releases today. Focus will remain on developments in the European markets and geopolitical developments in the Middle East. In France, the key issue in the coming days will be whether the Socialists and Marine Le Pen's National Rally signal they are willing to topple the government over the budget.

Eurozone inflation just hit 3.8%, its highest in three years. This chart shows why the ECB can’t simply hike its way out

The ECB would normally have a relatively straightforward answer to inflation running almost twice its target: raise interest rates. But these are not normal circumstances. This time, the bond market is already doing part of the tightening for it, leaving the ECB facing an increasingly difficult dilemma.