African currencies to remain under pressure as dollar index falls to April 2020 lows amid tariff uncertainty, recession fears

The United States (U.S) dollar has come under significant pressure, with the trade-weighted dollar index falling to levels last seen in April 2022 after five consecutive days of declines.

The slide was driven by renewed investor scepticism, largely due to inconsistent tariff policies under the administration of former President Donald Trump.

A temporary exemption for certain consumer electronics offered only brief relief, as Trump’s subsequent warnings of reinstated tariffs reignited market uncertainty.

According to a market analysis by Access Bank Group, this volatility has led financial markets to question the dollar’s traditional safe-haven status. Options markets, in particular, reflect growing demand for hedges against further depreciation.

“We expect continued dollar weakness, especially against the yen and euro, amid concerns over a potential US recession that could prompt a more aggressive response from the Federal Reserve,” the analysts noted.

However, the dollar’s decline has offered only limited support for African currencies. Weakening commodity markets continue to weigh on many African economies, putting downward pressure on their exchange rates.

“Tight global liquidity conditions also challenge higher-risk assets, limiting the ability of African foreign exchange markets to benefit from the dollar’s retreat. Until the Federal Reserve and other major central banks implement more aggressive monetary easing, African currencies are likely to remain under pressure, with limited short-term appreciation potential,” the report stated.

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