Dollar Index Crashes to 2-Year Low as Trump Backs Weaker Dollar, Markets React Sharply

Dollar Index Sees Worst One-Day Fall Since April

The U.S. Dollar Index (DXY), which measures the dollar against six major global currencies (excluding China), suffered its largest single-day drop since April 10, falling nearly 2%. The last time the dollar saw a similar plunge was amid escalating trade tensions and threats of 145% tariffs on China.

On that same April day:

• S&P 500 fell 3.5%
• Nasdaq Composite dropped 4.3%

US Dollar Hits Lowest Level Since February 2022

On Tuesday, the dollar declined 1.3%, marking:

• Its worst day since April
• The lowest level since February 2022
• A cumulative 10% decline over the past year

This sharp fall intensified after comments from President Donald Trump during his visit to Iowa.

Trump Reacts: “The Dollar Is Doing Great”

When asked whether the dollar had fallen too much, Trump dismissed concerns, stating:

“I think it’s great. The value of the dollar is doing great.”

Trump also revisited his long-standing criticism of China and Japan, accusing them of deliberately devaluing their currencies (yuan and yen) to gain trade advantages—an approach he once labeled “not fair.”

Markets interpreted Trump’s relaxed stance as tacit approval of a weaker dollar, triggering aggressive selling.

Market Reaction: FX Rout and Asset Shifts

Following Trump’s remarks:

• Euro surged above $1.20 for the first time in over 4½ years
• Swiss franc hit a 10-year high
• Dollar selling accelerated into a full-scale rout

Currency markets, after months of low volatility, suddenly became highly active as traders reacted to political signals.

Gold Soars Past $5,200 as Dollar Weakens

The falling dollar:

• Pushed gold to a record high above $5,200 per ounce
• Boosted the Australian dollar above $0.70

A weaker greenback typically raises demand for dollar-priced commodities, reinforcing gold’s appeal as a hedge.

Australian Dollar Gets Extra Boost from Rates

The Australian dollar was further supported by:

• Hotter-than-expected underlying inflation data
• Markets pricing in a 70%+ chance of an RBA rate hike next week
• All of Australia’s Big Four banks now forecasting a hike

This strengthened the Aussie alongside broader dollar weakness.

Central Banks in Focus: Fed Independence Questioned

While:

• The U.S. Federal Reserve and
• The Bank of Canada

are both expected to hold interest rates steady, investor attention is shifting toward Fed Chair Jerome Powell’s comments on central bank independence—a growing concern under Trump-era politics.

Global Investors Hedge Against Dollar Risk

According to Reuters, Australia’s second-largest pension fund, Australian Retirement Trust, has begun:

• Reducing dollar exposure via hedging
• While still maintaining U.S. investments

This strategy reflects a broader global trend: investors want U.S. assets—but not unhedged dollar risk.

Why Dollar Risk Is Rising in the Trump Era

Key factors pressuring the dollar include:

• Trump’s preference for a lower exchange rate
• Geopolitical tensions, including Greenland diplomacy
• Concerns over U.S. intervention in FX markets
• Growing doubts about Federal Reserve independence

As TD Securities analyst Prashant Newnaha noted:

“Imagine earning 4% on Treasuries but losing 10% on the currency.”

Outlook: Volatility Is Back in Currency Markets

After a long lull, FX volatility has returned. With political rhetoric now directly influencing currency direction, investors are increasingly cautious.

The message from markets is clear:
Sometimes, markets really do listen to Donald Trump—and when they do, the dollar moves fast.