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The USD sell-off that began last Friday is gaining traction and momentum. Weak USD sentiment initially channelled through USD/JPY, which continued to grind lower despite unconfirmed reports of Japanese authorities’ intervention and the New York Fed’s monitoring USD/JPY rates. The DXY Index found little support even as markets pared back expectations for more Fed cuts this year.
Record-high gold prices above USD5000/oz point to a structural repricing of geopolitical risk embedded in the USD-centric global financial system. US President Donald Trump’s ambition to assert control over Greenland acted as a catalyst, reinforcing perceptions that US policy is increasingly willing to weaponize trade and finance tools, even against allies. This has eroded the assumption that the USD is a neutral, rules-based reserve asset. Beyond geopolitical neutrality, gold’s appeal also stems from its role as a hedge against rising concerns about fiscal profligacy.
Domestically, political risks are also weighing on the USD. Some Republican lawmakers have begun breaking ranks over Trump’s immigration policies following the Minnesota shootings, alongside growing unease over his efforts to undermine the Fed’s independence. This raises the prospect of Republicans losing control of at least one house at the November midterms, reducing the odds of a repeat of the “Trump Trade” that propelled the USD during the 2024 presidential elections. Trump himself has shown little concern about the USD’s decline, describing it as helpful in addressing his long-standing complaints over perceived undervaluation of the CNY and JPY. His remarks about the USD seeking its own value echo the broader MAGA agenda and references to a potential “Mar-a-Lago Accord,” reminiscent of the 1985 Plaza Accord. 
As a result, the USD depreciation we anticipated over the first 6-9 months of this year is materialising earlier and at a faster pace than expected. Several currency pairs have already breached our “weak USD” targets set for 3Q26. USD/CNY and USD/MYR were first to head below 7.00 and 4.00, respectively, followed by GBP/USD above 1.37, AUD/USD above 0.69, USD/CHF below 0.78, and USD/VND below 26320. Other pairs are now approaching our 3Q26 targets, including EUR/USD at 1.21 and USD/THB at 30.6. Additionally, the broad USD weakness is providing some relief to some troubled Asian currencies such as the IDR and PHP. The INR could also benefit marginally from the landmark EU-India trade deal.
What is needed today is whether the DXY can continue to slide after today’s FOMC meeting. Markets will weigh Fed Chair Jerome Powell’s defence of the Fed’s independence against signals that the rate-cutting cycle may be nearing a pause. Trump also said he would soon nominate Powell’s successor, a choice he expects would lower interest rates. The balance here will determine whether the recent USD weakness evolves into a sustained downtrend that prompts a new round of downward revisions to USD forecasts.
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