Market Insights October 13, 2025

New disruptions linked to the trade war

The trade war waged by Donald Trump suddenly resurfaced in investors’ minds at the end of last week. Tensions appear to be reigniting with China, as the US administration criticizes the Chinese government for its export restrictions on rare earth elements. However, shortly after threatening to impose an additional 100% tariff on goods imported from China, Donald Trump seemed to soften his stance and reassured markets about a forthcoming “deal”. The market volatility observed at the end of the week will therefore likely be short-lived. Investors now appear more focused on the upcoming corporate earnings reports, set to begin later this week, as well as on the anticipated interest rate cuts.

The dollar finds temporary support

After several months of marked decline, the US dollar appears to have found some footing. Since the end of September, the currency has stabilized and even begun a slight rebound against major currencies, notably the euro and the Swiss franc. This corrective movement, more technical than fundamental, reflects a repositioning by investors following a period of excessive selling and increasingly extreme pessimism toward the greenback.

However, this reprieve does not challenge the broader assessment: the structural factors weighing on the dollar remain largely unchanged. On the monetary front, the Federal Reserve has confirmed its dovish shift and is expected to continue easing its policy over the coming quarters. Markets still anticipate several rate cuts before year-end and into 2026, which will further narrow yield differentials with other major developed economies. By diminishing the appeal of dollar-denominated assets, this policy stance weakens the currency from a fundamental perspective, even if the rate-cutting cycle is now largely priced in.

Meanwhile, the twin deficits of the United States, a budget deficit exceeding 6% of GDP and a structurally negative current account, remain a major source of vulnerability. These imbalances fuel doubts about the long-term sustainability of the US external position and reinforce the view that the dollar should follow a path of gradual depreciation. In addition, the political climate remains persistently uncertain: President Trump's continued pressure on the Federal Reserve and his stated intent to influence the composition of its Board of Governors perpetuate scepticism regarding the institution's independence.

In this context, the dollar’s recent stabilization may prove to be only a temporary pause before a new phase of weakening. Nevertheless, the extreme concentration of short positions and the renewed caution among investors pave the way for a continued short-term rebound. In other words, the greenback is currently enjoying a technical respite, but its medium-term trajectory remains downward in an environment where economic and political fundamentals continue to weigh against it.

This week’s figure: 5

The number of governments that have come and gone since the dissolution of the French parliament in June 2024. To date, despite all the political uncertainty, French financial assets are proving resilient.