The U.S. dollar just pulled off its strongest monthly performance of 2025, snapping a half-year losing streak. July saw the Bloomberg Dollar Spot Index climb 2.5%, powered by a mix of surprisingly strong economic data, a confident Federal Reserve, and new trade deals inked by President Donald Trump. GDP rose 3% in Q2, defying slowdown concerns. Fed Chair Jerome Powell signaled rates could stay higher for longer, tamping down expectations of a September cut. Traders are now assigning just a 40% probability to that move, compared to near-certainty before Powell’s remarks. The greenback, down 7% for the year before this rally, is suddenly on steadier footing.
Behind the surge is a broader shift in global capital flows. The S&P 500 is headed for a third straight monthly gain, pulling in money from abroad as investors chase U.S. assets. Big tech continues to deliver, with earnings momentum from firms like Tesla (NASDAQ:TSLA) underscoring America’s AI advantage. Treasuries are still attracting foreign buyers, and the dollar’s share of global FX reserves held steady in Q1, pushing back on fears that international investors would bail on U.S. exposure during the earlier selloff. If Friday’s jobs report holds up and inflation data stays sticky, Powell may have little reason to move rates before October.
Trade policy may be adding fuel to the rally. Trump’s latest deals appear skewed toward U.S. interests, with the euro down nearly 3% in July and Germany’s industrial leaders warning of a competitive blow. The yen and pound also slid more than 3.5%, while the Canadian dollar held up slightly better. One veteran FX strategist described the agreement as an embarrassment for Europe, reinforcing U.S. dominance in the current cycle. Options markets now reflect modest upside expectations for the dollarmarking a notable shift from May and June, when bearish sentiment was in full control.
This article first appeared on GuruFocus.