The world economy entered the month of June as it had entered every month since January: with uncertainty regarding policies emanating from the Trump White House, particularly those related to trade. Rollbacks, delays, and outright reductions in tariff rates eased tensions and raised hopes for outcomes better than those anticipated in the immediate aftermath of “Liberation Day.” However, prospects for any significant trade agreement with any country of concern remain remote.
The Trump administration remains focused not just on reducing the dollar value of a bilateral trade deficit but also on reducing the overall level of trade itself. This emphasis makes it increasingly difficult to reach any meaningful agreement in the short run. Most trade among countries is conducted by the private sector, and therefore it is not only difficult for policymakers to target a specific trade balance but even more challenging to target a specific level of trade. Moreover, trade balances are driven by broad macroeconomic factors—including differences in national savings and investment rates—which cannot be readily corrected through tariffs alone. There is also increasing concern regarding the negotiating teams led by Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick; very few within these teams seem to have the appropriate background to negotiate meaningful trade deals that allow market competitiveness to remain the strongest factor influencing trade flows.
Even when short-term measures temporarily ease tensions, the unpredictability of policy shifts undermines confidence in the stability of trade relationships. Firms operating across borders find it difficult to plan investments or commit to long-term contracts, knowing that terms can change abruptly. To date, each announcement of new restrictions or conciliatory gestures has triggered volatility in financial markets, reflecting the challenges investors face in assessing trade-related risks.
In this environment, uncertainty itself becomes a significant economic headwind, weighing on business sentiment and dampening the willingness of companies to expand operations internationally. While the stated objective of achieving fairer trade resonates with parts of the electorate, the operational reality proves far more complex, highlighting the limits of unilateral policy tools in reshaping global commerce.
Nowhere has this been more evident than in foreign exchange markets. While U.S. equities have rallied significantly from their April lows, and many are now displaying positive returns for 2025, when corrected for the weakness in the dollar they remain in negative territory. The U.S. currency, measured against developed market currencies or emerging market ones, has not only remained weak year to date, but it has also continued to weaken since the Liberation Day announcements, and June was no different.
As seen in Exhibit One above, year to date the U.S. dollar has weakened by approximately 9.5 percent against a basket of advanced economy currencies and by slightly over 5.5 percent against a basket of emerging market currencies. June was a particularly weak month for the dollar, as it declined by slightly more than 2.2 percent against advanced economy currencies and fell by 1.5 percent against emerging market currencies. While this weak performance was not as severe as April’s decline (though against emerging markets it was close), June marked the sixth consecutive month of dollar weakness against advanced economy currencies and the fourth consecutive monthly decline against emerging market currencies, setting fresh lows for the year. Against a basket of advanced economy currencies, the U.S. dollar is now trading at its lowest levels since March 2022, and against the basket of emerging market currencies, it is at its weakest levels since March 2024.
In addition to the aggregation of uncertainties mentioned above (which we do not believe will diminish in the near or even medium term), the negative implications for the budget deficit stemming from the passage of the “One Big Beautiful Bill,” and a shift in U.S. monetary policy toward loosening prior to year-end 2025, we expect dollar weakness to continue for the foreseeable future with intermittent volatility.
As always, stay tuned.
Ardavan Mobasheri
Chief Economist
