Once again, the US dollar is being forced to defend its place in the global financial spotlight. Despite a modest recovery, the greenback's overall position has weakened. Though recent policy shifts have provided some support, analysts at RBC Capital Markets still see compelling reasons to expect further dollar depreciation in the year ahead.

Market volatility has subsided following the turmoil triggered by the so-called "Liberation Day," as the US administration moved toward de-escalation. This began with a 90-day tariff pause, followed by selective tariff reductions and the revival of trade talks, including those with China.

Nevertheless, market participants acknowledge that both the United States and other global economies are unlikely to escape unscathed. This has already been reflected in weaker "soft data," such as purchasing managers' indices and business sentiment indicators. For now, however, "hard data" remains more resilient. Recent GDP figures from Europe for the first quarter of 2025 even point to a stronger-than-expected macroeconomic backdrop.

Yet, RBC analysts caution that the current calm may be short-lived. They argue that the full impact of tariffs on the real economy is difficult to measure and will take time to materialize.

In Europe, a slowdown in activity is likely in the second quarter and into the second half of 2025. RBC also notes that Germany’s fiscal expansion is expected to begin once the effect of tariffs starts to show up in the data.

Meanwhile, the latest inflation report from the euro area was better than anticipated. Consumer inflation expectations are also rising, adding complexity to the region's policy outlook.

RBC sees the current environment as a period of calm following a storm. Against this backdrop, the bank has revised its forecasts and now expects gains in major currency pairs, including EUR/USD, GBP/USD, and EUR/GBP, within the next 12 to 18 months. Specifically for the euro, RBC anticipates a sharp increase in hedging ratios.