Topline
The U.S. dollar slipped Friday to its lowest level since April 2022 while gold shot up to another all-time high, reflecting a sustained shift in safe haven preference among many investors and central banks as President Donald Trump’s tariffs shake the global status quo.
Key Facts
The Dollar Index (DXY), which tracks the greenback against a weighted basket of six foreign currencies including the Euro and the Japanese yen, fell as much as 1.8% to 99.01 Friday.
That extended the dollar’s year-to-date decline to more than 8%, with much of the loss concentrated following Trump’s “Liberation Day” tariff announcement last Wednesday, as the dollar is down 4% since last Wednesday, when the DXY closed at 103.81.
The recent dollar move comes as the U.S. bond and stock markets have both slid—the S&P 500 is down 8% since Wednesday as 10-year Treasury yields jumped by nearly 40 basis points to a two-month high (higher yields mean less valuable bonds)—and the currency’s decline is a reflection of investors’ discomfort with dollar exposure as Trump isolates the U.S. economy.
“Normally, when you see big tariff increases, I would have expected the dollar to go up,” Minneapolis Federal Reserve President Neel Kashkari said Friday on CNBC’s “Squawk Box,” adding, “the fact that the dollar is going down at the same time, I think, lends some more credibility to the story of investor preferences shifting.”
Crucial Quote
“What is potentially being compromised is the post World War II order of international finance where the dollar has been the central pillar” of the global economy, Bhanu Baweja, UBS Investment Bank’s chief strategist, said in a call with media Monday. The “Trump administration has compromised” the decades-long order of agreements on military and trade tethered to the dollar, added Baweja.
Yet Gold Glitters
As the dollar has faltered, gold has surged as the preeminent spot for investors looking for safe parking. Spot gold prices hit a new record of about $3,260 per troy ounce Friday, extending its year-to-date gain to 23%. Gold is a popular option in times of heightened macroeconomic and geopolitical turmoil for its lengthy history as a store of value across societies and regimes.
Contra
More than half (57.8%) of the $12.4 trillion in global foreign exchange reserves were U.S. dollars, according to the International Monetary Fund, solidifying the greenback’s status as the global reserve currency. The dollar may be at its weakest level in three years, but it’s far from historically weak, sitting well within its 2016 to 2021 range before inflation and Russia’s war in Ukraine strengthened the currency. The dollar is still about 40% higher than it was at its Great Recession nadir in 2008.
Why Would Trump Want A Weaker Dollar?
Trump made clear in his first term he wants a weaker dollar, declaring in 2017 “our currency is too strong and it’s killing us” and saying in 2019 he was not “thrilled” with the “strong dollar.” Trump explained in 2017 his belief the strong dollar makes it so “our companies can’t compete” in foreign markets as cheaper foreign currency makes American firms’ prices in foreign markets less competitive, eating into margins of profits collected abroad. Trump has been less forthcoming on his thoughts on the dollar during his second term, but Treasury Secretary Scott Bessent said in February the Trump administration wants “the dollar to be strong,” but what they “don’t want is other countries to weaken their currencies, to manipulate their trade.”
Further Reading
Read the full article here
