In its quarterly report to Congress regarding its foreign exchange operations for the second quarter of 2025, the Federal Reserve and the U.S. Treasury reported that there was no intervention in the foreign exchange markets. The U.S. dollar, as measured by its broad-weighted dollar index, depreciated 5.6%. Cumulatively, the dollar has depreciated 7.5% since the beginning of the year.
According to the Federal Reserve Bank of New York, the depreciation in the greenback is due possibly to downward revisions in the growth outlook of the U.S. given the announcement of reciprocal tariffs on America’s trading partners. In addition, U.S. investors may have increased their hedges on dollar assets. In other words, they may have invested in other non-dollar denominated assets to make up for any loss in value (spending power) of the dollar.
The Fed reported that the dollar has depreciated 8.2% against the euro and 4% against the Japanese yen.
President Trump, as I have mentioned in prior blog posts, has been pushing a weak dollar agenda for the purpose of encouraging the foreign purchases of more American-produced goods. In addition to placing tariffs on the European Union and obtaining pledges (albeit not binding) to increase European investment in the United States, the US has been signaling doubt about its support of NATO, particularly support for Article 5 of the charter creating NATO.
In addition to Europe, there is concern in Asia, particularly Japan and South Korea, that the United States may not be that reliable ally when it comes to the region’s security concerns.
From a currency standpoint, could the United States be messaging, at least indirectly, that a more independent Europe creates a more competitive euro versus the dollar? If Europe along with Asia had to rely more on their resources to provide security for themselves, that could contribute to less demand for the dollar making the greenback cheaper.
Of course there would be the question of degree. The more independent either region becomes, the greater the cost incurred by the U.S. to create and market a quality product that would encourage Europe and Japan to still come to the U.S. to do a little window shopping.
If this is indeed part of the Trump administration’s agenda for the management of the currency, there may be a more palpable endgame to the chaotic optics of Trump’s trade policy.
Alton Drew
20 August 2025
For a political and/or legal analysis of events surrounding your trade, contact me at altondrew@altondrew.com.
Disclaimer: This post is provided for informational purposes only. It is not intended as legal or trading advice. Trading is risky. Before embarking on your trading journey, consult a professional trading advisor.
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