Dollar Roars Back: USD Stages Strong Rebound Against Major Currencies After August 1 Plunge

The greenback flexes its muscles again—proving even fiat dinosaurs can have good days.

From freefall to flight

Three days after its August 1 nosedive, the USD mounted a textbook recovery against forex rivals. No central bank whispers or economic reports fueled this rally—just good old-fashioned market whiplash.

Currency wars get boring

Same players, same playground. Traders yawned through another round of dollar dominance while crypto markets quietly absorbed the liquidity shuffle. Because nothing says 'stable store of value' like a 3% daily swing, right?

The dollar's Lazarus act leaves one question: How long until the next 'unprecedented' volatility event? Place your bets—the house always wins.

Sycamore says market reaction was ‘swift and decisive’

Markets are aggressively scaling back cuts priced for 2025 (blue). That's lifting the Dollar. But cuts priced through 2026 are unchanged (red), so that's still muting Dollar appreciation. Full capitulation by markets will only come when they scale back total cuts through 2026… pic.twitter.com/1n6weMaGqo

— Robin Brooks (@robin_j_brooks) August 1, 2025

Tony Sycamore, an IG market Analyst, said the market reacted decisively and swiftly on Friday following the turn of events. He pointed out that the U.S. dollar, equities, and yields tumbled as investors saw a 95% chance of a September Fed rate cut.

David Doyle, the Head of Economics at Macquarie Group, also confirmed calls for the FOMC to cut rates by 25 basis points in September. He added that the results of the weak U.S. labor market report were likely to change the balance of risks to the FOMC’s assessment of its outlook. 

MRB Partners recently expressed concerns over the escalation of ‘long-term debt imbalances,’ arguing that removing the Fed’s independence WOULD lead to this unsettling development. They added that maximizing near-term economic growth through monetary policy could have a similar effect. The privately-owned research firm also pointed out that these developments could increase the instability of the U.S. financial system and economy.

“It would also increase instability of the U.S. economy and financial system, provided that the initial positive growth consequences were not aborted by a full-blown bond market riot.” – MRB Partners, an Independent research firm 

MRB claimed the U.S. debt could become more volatile as the TRUMP administration sought to maximize short-term growth by dangerously tying servicing costs to short-term rates.

The research firm added that the actual cost “savings” could be exaggerated as the yield curve for short-term treasury bills became “less liquid.” 

MRB warns of ‘a dire scenario’

MRB warned of a “dire scenario” if faith in the U.S. government’s ability or willingness to repay its debts faltered. The research firm also warned that markets could shun even treasury bills and force the Fed to print more money and buy government debt directly. MRB suggested that this development was a sure way for the greenback to lose its status as the world reserve currency. 

MRB said the U.S. economy could become more reliant on short-term interest rates remaining low over time, leading to the central bank’s reluctance to “lift policy rates,” even when inflation became a problem.

Ironically, the research firm claimed that the Fed’s sway over the country’s day-to-day economic activities would increase. The entire economy would become “hypersensitive” to the Fed’s moves, increasing risks of an unintended recession. 

MRB also pointed out that the private sector was unlikely to be unscathed. It argued that this was one of the many reasons Trump kept insisting on deeper Fed rate cuts. However, the effects of a “politicized Fed” would probably be witnessed in the debt market. 

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