BBH says the US dollar started the week weaker after a US Supreme Court ruling on tariffs. However, it notes the move is not yet decisive. BBH remains structurally bearish because of fiscal and trade forces, but stays cyclically neutral because the USD is still tracking interest-rate differentials. BBH warns the ruling could weaken US fiscal credibility and increase trade frictions. It adds that these structural headwinds could push the USD below what rate spreads would normally suggest, as happened in Q2 last year.

Structural Risks Versus Rate Support

Fed funds futures are fully pricing in 50 bps of rate cuts by year-end. BBH links this pricing to weaker labour demand, fading upside inflation risks, and softer private-sector demand. BBH says the Federal Reserve can stay patient before cutting again. It points to an expected fiscal boost in Q1 from the One Big Beautiful Bill Act (OBBBA), no sign of a layoff spiral, and core services ex-housing PCE inflation holding between 3.2% and 3.4% since March 2025. The dollar has begun the week on a softer footing after the Supreme Court tariff ruling, which raises concerns about the US fiscal outlook and trade policy. This supports our long-term bearish view. For now, though, the dollar is still moving broadly in line with interest-rate differentials. That keeps our near-term view neutral and highlights a push-pull between structural weakness and cyclical support. The key risk is that structural issues could suddenly overwhelm rate support and drag the dollar lower. We saw a similar break in Q2 2025, when the dollar fell 4% even though US yields were attractive, because markets focused on the trade deficit. Traders should watch for another shift like this, where the dollar stops reacting positively to supportive rate news.

Trading Implications For The Dollar

Markets are confidently pricing in two full Fed rate cuts by the end of the year. That view is backed by clearer signs of cooling in the labour market. The latest JOLTS data show job openings have fallen to 8.2 million, the lowest since mid-2024. With inflation pressures also easing, the case for eventual rate cuts is strengthening. Even so, BBH argues the Fed can afford to wait, which could support the dollar in the weeks ahead. The large One Big Beautiful Bill Act is adding a meaningful fiscal boost to the economy, and the Fed’s preferred “supercore” inflation measure has remained sticky at around 3.3% since last year. That persistence gives policymakers a reason to delay cuts. For derivatives traders, this tension—future cuts priced in, but a Fed that is not rushing—suggests the dollar may stay range-bound. Expected easing can cap upside, while the Fed’s patience can help set a floor. That can make lower-volatility strategies, such as selling strangles on EUR/USD, more appealing. These trades assume the dollar will not break out decisively in either direction over the next few weeks. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now