Dollar Dives as Stagflation Fears and Trade Woes Grip Markets

The US Dollar remains under intense downward pressure amid concerns that US trade policies could trigger stagflation in the country. Negative economic data further compounded the currency’s losses, which began at the start of trading on Tuesday, May 6, 2025.

The US trade deficit hit a record -$140.5 billion in April, up from the previous month’s -$123.2 billion, surpassing market expectations of -$129.00 billion.

This glaring trade deficit is among the most significant factors likely to adversely affect GDP readings, sparking widespread negativity in global financial markets. This comes just days after the release of the US GDP data for the first quarter of this year, which revealed an economic contraction of -0.3%.

The US Dollar is also weighed down by anticipation surrounding the Federal Reserve’s interest rate decision, with expectations that the central bank will maintain current rate levels unchanged.

Interest rate expectations from the Chicago Board of Trade showed a decline in the likelihood of a Federal Reserve rate cut, dropping to 2.00% for the Federal Open Market Committee meeting scheduled for May 6-7.