According to United Overseas Bank (UOB) analysts, the U.S. dollar is expected to strengthen further as tariffs escalate and geopolitical uncertainties persist. Despite the Federal Reserve’s cautious approach to rate cuts, concerns over trade relationships, particularly with China, will likely keep the USD/VND exchange rate anchored to the upside. UOB’s updated forecast predicts the USD/VND will reach 25,600 in Q1 2025 and 26,000 by Q3 2025.
Most Asian currencies had a positive start to 2025, with fears of immediate tariffs from the Trump administration proving unfounded. However, in February, President Trump renewed threats of punitive tariffs against major trading partners, including Canada, Mexico, and China. While Canada and Mexico have temporarily avoided these tariffs, the 10% tariffs against China are expected to proceed.
This uncertainty and the resulting economic impacts highlight the “new normal” under the current U.S. administration. Financial markets may not fully account for the macroeconomic effects of these tariff threats, including the potential need for a “Tariff Risk Premium.” Increased U.S. inflation expectations have made the USD a key beneficiary in this environment. Analysts project the USD Index (DXY) will rise to 112.6 by Q2/2025.
The difference in interest rate expectations also supports the USD’s strength. While UOB forecasts a 25-basis-point rate cut by the Fed this year, other major central banks, such as the ECB, BOE, RBA, and RBNZ, are expected to implement more significant rate cuts.
Analysts predict USD strength
This divergence is a key factor underpinning the USD’s strength relative to its major currency peers. The Euro (EUR) is expected to face additional pressure due to ongoing tariff threats from the U.S., with EUR/USD predicted to drop to 0.98 by Q2/2025. Similarly, GBP/USD is projected to fall to 1.20 and AUD/USD to 0.59 by the same period.
The Chinese Yuan (CNY) is also expected to depreciate further, with USD/CNY rising to 7.65 by Q3/2025 amid China’s economic slowdown and escalating tariffs. The gold market shows increased activity, with premiums on futures and spot prices widening significantly. This movement confirms a shift in physical gold delivery from Europe to New York, driven by escalating trade tensions and reinforcing a positive outlook for gold prices, projected to reach $3; It reinforces end-2025.the end of 2025
The global economic landscape appears uncertain as President Trump’s tariff policies create constant volatility. There remains a significant risk that additional tariffs could be imposed on the European Union or existing tariffs against other key trading partners could intensify. This potentiality is captured in a pessimistic scenario that could see U.S. GDP growth slowing to 1%, inflation rising to 3.1%, and China’s growth falling to 3.5%.
Financial markets and global investors will likely need to navigate these uncertainties in the coming months. Stronger USD performance seems plausible as inflation expectations rise and market participants consider the implications of ongoing tariff threats. UOB maintains its projections for the DXY to climb further by mid-2025, with potential significant jumps in the worst-case scenarios.
Photo by Emilio Takas