The US dollar has come under heavy selling pressure, dropping to six-month lows as investor confidence in the strength of US markets deteriorates. A sharp decline in equity futures and growing recession fears are prompting capital to move away from the United States, allowing both the Pound and Euro to advance.
S&P 500 futures have fallen 3.5%, signalling rising anxiety over the direction of the US economy. Hopes of a resilient US recovery are fading, replaced by uncertainty and a rush to reassess risk. In currency markets, that shift is being felt sharply.
The Pound to Dollar (GBP/USD) exchange rate has risen above 1.3200 for the first time in half a year, while the Euro has pushed past 1.1100 against the greenback. However, analysts suggest that further gains for the Euro could be limited unless the US economy deteriorates further.
“Resistance is clustered in the 1.11 to 1.12 region,” ING analysts noted. “It would take a significant downturn in US activity to drive a sustained break above that zone.”
Despite Sterling’s strength against the dollar, its position against the Euro has weakened. The EUR/GBP exchange rate has slipped, as traders weigh the broader risk environment. According to MUFG, the UK may be less exposed to recent tariffs than the Eurozone, but the Pound still tends to fall faster in times of market stress.
Criticism of US trade policy is intensifying. Deutsche Bank has expressed unease over what it describes as an inconsistent and damaging approach to tariffs, warning that the lack of clarity is undermining the administration’s economic credibility.
“There’s a major disconnect between talk of careful trade policy assessments and the blunt, reactive measures being introduced,” the bank said. “This mismatch risks eroding confidence in future policy direction.”
Meanwhile, the assumption that tariffs would support the dollar by shielding US consumers from rising import prices appears to be unraveling. ING has highlighted that this expectation is now backfiring.
“Instead of providing insulation, the weaker dollar is adding to import cost pressures,” ING said. “It’s a miscalculation that could become a bigger problem if not addressed.”
MUFG, however, suggests the dollar’s fall may not last indefinitely. “Right now, the dollar is reacting to fears of stagflation and falling interest rate expectations,” the bank said. “But if global growth slows more sharply, the dollar could rebound as investors return to safe assets.”
For the moment, Sterling remains buoyant. But with volatility high and sentiment shifting quickly, market conditions are far from stable—and confidence in US economic policy is facing its toughest test in years.
Overnight US Market Update
US stocks saw their steepest fall since 2020 after President Trump unveiled sweeping tariffs, fuelling fears of a global trade war and deep recession. The S&P 500 tumbled nearly 5%, erasing $2 trillion in market value, while the Nasdaq sank close to 6%. Major multinationals, banks, and retailers bore the brunt of the sell-off, with small caps sliding into bear market territory. The US Dollar Index slumped to a six-month low, now down almost 7% since Inauguration Day. Meanwhile, 10-year Treasury yields dipped to 4.04%, driving renewed interest in high-yield bond ETFs such as SHYG (7.2%) and KHYB (10.3%) as investors seek stable income.
