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Dollar plunges to multi-year low amid policy concerns
The U.S. dollar sank to its weakest level in four years this week, extending a sharp decline that analysts warn may not be over. The currency fell 3% in just seven days, hitting lows not seen since 2022 against the euro and pound.
What's driving the slide?
The dollar's downturn follows more than a decade of strength, particularly between 2020 and 2022, when post-pandemic growth and high interest rates attracted investors. However, last year's 10% drop-its worst since 2017-set the stage for the current decline.
Recent tensions between the U.S. and Europe over Greenland, along with speculation about potential dollar-selling interventions to support the yen, have accelerated the trend. Analysts also point to market unease over the Trump administration's unpredictable policies, including tariffs and geopolitical escalations.
"Markets are reacting to the haphazard nature of policy in this administration-the escalation, de-escalation," said Robin Brooks, senior fellow at the Brookings Institution and former FX strategist at Goldman Sachs.
Robin Brooks, Brookings Institution
Economic and market fallout
A weaker dollar reduces American purchasing power, particularly for travelers and importers, and risks stoking inflation as import prices rise. The shift has also fueled speculation about the dollar's long-term dominance, which has kept U.S. borrowing costs low for decades.
Gold prices have surged, doubling over the past year as investors seek safe havens. Meanwhile, the euro and pound have strengthened, and 11 of 19 emerging-market currencies tracked by Oxford Economics rose more than 1% this month. Some global investors, including pension funds in Amsterdam and Denmark, have reduced holdings of U.S. Treasuries.
Is this a turning point?
Despite the dollar's decline, U.S. stocks remain near record highs, and government debt markets have seen only modest moves. Chris Turner, global head of financial market research at ING, dismissed fears of a full "sell America" narrative but predicted the dollar could fall another 4% to 5% this year as global growth outside the U.S. improves.
For now, the impact on American consumers remains limited, according to Brooks. However, the Federal Reserve's next moves-particularly interest rate cuts-could further weaken the dollar if investors chase higher returns abroad. Trump has pushed for faster rate reductions and is expected to appoint a Fed chair more aligned with his views.
White House's mixed signals
The Trump administration has sent conflicting messages about the dollar's decline. While officials have previously welcomed a weaker currency to boost exports, Trump this week called the dollar's performance "doing great."
"It doesn't sound good, but you make a hell of a lot more money with a weaker dollar... than you do with a strong dollar," Trump said in July.
Donald Trump, U.S. President
Analysts caution that if the dollar's drop reflects market skepticism about U.S. policies, it could signal deeper economic concerns. As Thierry Wizman of Macquarie noted, the recent volatility has unnerved traders, with bets on future swings rising alongside the currency's decline.
