Market Drivers – US Session: Dollar Sinks to Two-Week Lows as Debt Fears and Weak Data Rattle Markets

The US dollar plummeted to two-week lows on May 22, 2025, with the US Dollar Index (DXY) breaching the 100.00 mark, driven by fears over President Donald Trump’s deficit-bloating tax bill and a faltering US economy. As GBP/USD hit 1.3470 and gold topped $3,300, global markets braced for volatility. Experts warn that the Federal Reserve, led by Chair Jerome Powell, and global central banks must act swiftly to stabilize currencies, but rising geopolitical risks and fiscal uncertainty demand cautious, data-driven moves to avert a deeper crisis.

US Debt and Economic Woes Crush Dollar

The DXY slid to 99.58, down from 100.12, as Trump’s $3 trillion to $4 trillion tax bill, nearing a House vote, sparked panic over the $36 trillion US debt pile, already stung by Moody’s Aa1 downgrade. Weak economic signals, with growth projected at 1.4% for 2025, deepened the dollar’s rout. The 2011 debt crisis, which tanked the dollar 3% in weeks, looms as a warning. Experts argue Powell must signal fiscal restraint to restore confidence, as today’s Chicago Fed National Activity Index, Initial Jobless Claims, and S&P Global PMIs could further expose economic fragility.

Pound and Euro Surge on Dollar’s Pain

GBP/USD soared to 1.3470, a level unseen since February 2022, fueled by UK inflation hitting 3.5% in April, above the 3.3% forecast, and the dollar’s slide. EUR/USD broke past 1.1300, lifted by a weaker greenback and anticipation of Germany’s IFO Business Climate and ECB policy accounts. UK’s PMI data and BoE speeches, alongside Eurozone PMIs, will shape rate expectations. The 2022 pound rally, driven by similar inflation spikes, shows currency strength can falter without policy support. Experts caution that the BoE and ECB must tighten rates judiciously to curb inflation without choking growth.

Yen and Commodities Ride Safe-Haven Wave

USD/JPY fell to 143.61, a two-week low, as Japan’s rising bond yields and safe-haven demand, spurred by reports of Israeli strikes on Iran, bolstered the yen. Gold climbed above $3,300, with silver hitting $33.00, reflecting geopolitical jitters and dollar weakness. WTI crude, however, dipped below $62.00 after a surprise 1.3 million-barrel US inventory build, per the EIA. Japan’s PMI data and BoJ speeches will guide yen momentum. Experts warn that central banks should coordinate to manage safe-haven flows, citing 2019’s yen surge as a volatility benchmark.

According to experts, Powell must anchor markets with clear rate signals, while the BoE, ECB, and BoJ should align policies to counter tariff and debt risks. Trump’s fiscal gambit threatens inflation, projected to exceed 2% through 2027, and could echo 2022’s tightening pain. Investors should hedge with gold and yen, but volatility looms if trade talks falter. Experts urge data-driven discipline, emphasizing that coordinated global action is critical to navigate this economic storm and prevent a currency crisis.