The US dollar’s value has fallen in the wake of Donald Trump’s “Liberation Day” tariff announcement on April 2.
The dollar, which typically increases in value during times of financial turbulence, has continued on a downward trend, even though the US stock markets have mostly recovered since then.
Due to Trump’s extreme international trade policies, which have slowed the recovery of the US economy later this year, causing a decline in demand for the country’s currency.
Trump’s tariff blitz also makes it increasingly likely that the dollar’s hold on power may be waning or even losing.
According to Deutsche Bank analysts in a recent note to clients, “the world is facing a dollar confidence crisis as the repercussions of ‘Liberation Day’ continue to resonate.”
The US has been the “safe haven” for investment for close to a century. A peg to the dollar is still used by many nations, indicating that their currency prices are correlated.
Investors are now starting to worry about the dollar’s long-term security, which could have a significant impact.
How is the dollar doing?
The Trump administration announced tough import tariffs on April 2 that would stifle confidence in the world’s largest economy and cause a sell-off of US financial assets on April 2.
In the three days following “Liberation Day,” more than $5 trillion was wiped from the benchmark S&, P 500 index of shares.
US Treasury bills, which have long been viewed as the archetypical safe investment, also experienced selloffs, which significantly lower their prices and cause significantly higher debt costs for the US government.
Trump announced a 90-day pause on tariffs on April 9 in response to a rout in the financial markets. However, investors are hesitant to own dollar-linked assets.
The dollar has fallen by 3% in April in comparison to a range of other currencies, breaking a nearly 10% decline since the start of 2025, to reach its lowest level in three years.
According to Karsten Junius, chief economist at Bank J Safra Sarasin, “investors have been selling US assets, and the value of the dollar has decreased.”
Since there hasn’t been a loss of faith in US economic policymaking, he continued, “but the dollar hasn’t increased as much]as US equity prices since April 9.”
What makes the US dollar so significant?
The US dollar has been the world’s largest reserve currency for the past 80 years, with significant amounts of foreign currencies being held by the world’s monetary authorities.
Due to the first and second world wars, the dollar largely became the world’s dominant currency. The US was making money as Europe and Japan sank into a prattle.
The role of the greenback in supporting the global financial system increased in 1971 when Richard Nixon removed the link between gold and the value of the US dollar. Its demand also increased.
Most nations abandoned gold convertibility after the “Nixon shock,” but they did not adopt market-determined exchange rates. Instead, they favored the dollar as the value of their currencies.
The dollar became the norm as the anchor of the dollar due to its dominance in both trade and finance. For instance, many Gulf nations began pegging their currencies to the greenback in the 1980s.
Its influence continued beyond that point. The Atlantic Council estimates that 54 percent of global exports were in dollars in 2023, compared to the US, which only accounts for one-quarter of the global gross domestic product (GDP).
Its standing in the financial industry is even stronger. Nearly 70% of international bonds are quoted in US dollars, while about 60% of all bank deposits are in US dollars.
According to the IMF, 57% of the world’s foreign currency reserves are held in dollars, which are assets held by central banks around the world.
However, confidence in the US economy, its financial markets, and its legal system is largely attributed to the dollar’s reserve status.
Trump is altering that. According to Junius, “he doesn’t care about international standards,” and investors are beginning to realize how exposed they are to US assets are.
According to Apollo Asset Management, foreigners own $ 9 trillion worth of US equities, $ 7 trillion worth of US Treasuries, and $ 5 trillion worth of US corporate bonds. That accounts for roughly 30% of the global GDP.
The dollar’s value could be put under sustained pressure if even some of these investors start lowering their positions.
What effects does having a lower-value dollar have?
Many members of the Trump administration refute the claim that the US dollar’s reserve status raises the price of US exports because it raises the cost of its overvaluation.
Trump’s Council of Economic Advisers chair, Stephen Miran, recently remarked, “high dollar valuations place undue burdens on our firms and workers, making their products and labor uncompetitive on the global stage.”
He continued, “Targets are a response to this unpleasant reality, and one factor is the dollar’s overvaluation has been to the US’s declining competitiveness over the years.
A lower dollar, at first glance, would support domestic manufacturing and help the nation’s trade deficits be less expensive for foreigners.
Jose Antonio Ocampo, former Colombian finance minister, told Al Jazeera, “It will also make imports more expensive, hurting consumers.” “The general consensus is that US inflation will rise.”
“Alsowhere, the price of gold has increased,” Campo said. There seems to be a growing preference for holding gold rather than US Treasuries among central banks.
Ocampo added that he believes that Trump’s tariff announcements have hurt confidence in the dollar and that gains in other safe-haven currencies have helped offset this.
Since the start of the month, the euro has increased more than 5% on the dollar since April 11 and reached a three-year high above $ 1.14.
Could the dollar become the world’s dominant currency?
Ocampo said, “For the time being, I believe the dollar will remain the dominant global currency.”
He added, however, that Trump is undermining world currency dominance by weakening the US’s economic foundations. Ocampo, for his part, mentioned two favorable currencies.
Inflows into the Swiss franc have recently occurred. He claimed that the euro is the only real substitute for the dollar.
One-third of the dollar amount is currently held by the euro, accounting for 20% of international foreign exchange reserves.
Source: Aljazeera
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