The US dollar has just endured its worst trading week in 18 months, as currency traders grapple with uncertainty surrounding Donald Trump’s tariff threats. The Bloomberg Dollar Spot Index fell 1.7% since the previous Friday, marking its largest weekly decline since July 2023, when the Federal Reserve ended its monetary policy tightening cycle. the global reserve currency continued to slide late in yesterday’s trading after Trump appeared more flexible about imposing tariffs on China [[1]].
trump’s threats against key US trading partners, including Canada and Mexico, have rattled markets. Though, no immediate executive orders imposing specific tariffs have been issued. Instead, Trump has instructed the Departments of Treasury and Commerce to study current trade relations and submit their findings by April 1 [[2]].
More Freedom of Movement for Investors
According to Matthew Hornbach, head of macro strategy at Morgan Stanley, investors were initially hesitant to sell the US dollar before Trump’s inauguration, fearing immediate tariff impositions. however, they now have more freedom to act. Hornbach stated on Bloomberg TV: “The more time passes in President Trump’s second term, I think investors will feel more pleasant expressing their opinions, which are that the dollar is overvalued, interest rates are high, and both are ready to enter a corrective path.” He predicted that investors exiting the US dollar would favor the Japanese yen, the euro, and the British pound [[3]].
The British pound led the gains among the 10 strongest currencies against the US dollar this week, rising by more than 2.5%. This surge was supported by better-than-expected manufacturing and services data in the United Kingdom. The euro is also on track to record its best week as 2023, as Trump’s trade statements have largely focused on north American neighbors rather than the single currency area [[4]].
Trump Wins the Election
Investors’ bets on the dollar’s rise and the currency’s value itself have increased since Trump’s election victory last November. The dollar index has risen by about 3% since November 5, while derivatives contracts traders hold the equivalent of $34.6 billion in large buying positions, according to data from the Commodity futures Trading Commission. This is the highest level since 2019 [[5]].
Though, this week’s decline in the US dollar may reflect a reduction in its excessive long positions, suggesting the downturn could be short-lived. currency analysts at Mitsubishi UFJ Financial Group, including Derek Halfpenny and Lee Hardman, wrote in a note to clients: “We remain convinced that Trump will actively use tariffs, and by the end of next week financial markets’ interpretations of tariffs may differ markedly.”
Key Takeaways
| Metric | Details |
|———————————|—————————————————————————–|
| Bloomberg Dollar Spot Index | Fell 1.7% in the largest weekly decline since July 2023. |
| British pound performance | Rose by 2.5%, leading gains among top currencies. |
| Euro Performance | On track for its best week since 2023.|
| Dollar Index Since Election | Increased by 3% since November 5. |
| Derivatives Contracts | Traders hold $34.6 billion in large buying positions, the highest as 2019. |
As markets continue to react to Trump’s tariff rhetoric, investors remain cautious, yet increasingly willing to pivot away from the US dollar. The coming weeks will be critical in determining whether this shift is temporary or the start of a broader trend.
