Taking stock of USD pessimism
13/06/2025
The US dollar stands at a potentially pivotal juncture. The real trade-weighted exchange rate has surpassed its peak at the time of the 1985 Plaza Accord while the US now accounts for roughly two-thirds of global current account deficits. These mounting imbalances have drawn the ire of Republican trade hawks, and historical parallels with the Plaza Accord are fuelling speculation about a possible shift towards a weaker dollar policy.
In this research note, we examine the structural drivers behind dollar strength, review the factors behind its recent decline, and evaluate whether investor expectations of further weakness are justified. We underscore the challenges of achieving a Plaza Accord-style agreement in today’s environment and highlight the risks posed by Republican trade and fiscal strategies. Finally, we look beyond prevailing pessimism to assess the potential case for renewed dollar strength.