The US Dollar Under Pressure: What’s Next?

The US Dollar Under Pressure: What’s Next?

Markets are increasingly skeptical about the strength of the US economy – and the dollar is feeling the pressure.

On April 9, President Trump followed through on his tariff threats, imposing new levies on imports from a range of countries. But the tough stance didn’t last long. Just hours later, he announced a 90-day "pause" and reduced reciprocal tariffs via Truth Social. Markets responded immediately and positively: the S&P 500, Nasdaq, and Dow Jones all rallied, along with other risk assets. Trump later hailed the move as a success, citing how much two CEOs had profited from it.

Meanwhile, tensions with China escalated further. Both sides raised tariffs to nearly prohibitive levels, rattling investor sentiment – even if only briefly. The back-and-forth has created a sense of unease across global markets.

As Reuters notes, the shifting trade policy is causing companies worldwide to hold back: “Sweeping tariffs imposed by US President Donald Trump and subsequent pauses in some of them have created uncertainty... prompting some firms to pull back or refrain from issuing financial guidance.”

No surprise then that the US Dollar Index (DXY) continues to slide. Traders are increasingly betting on a stronger euro, especially after it broke out of a long-term downtrend. Even reassurances from US Treasury officials about a “strong dollar policy” have done little to stop the decline.

Many market participants now believe the US economy is losing momentum and expect up to four rate cuts from the Federal Reserve before year’s end. All eyes are now on Fed Chair Jerome Powell’s upcoming speech – will he offer any guidance on what comes next?

Of course, the Fed’s main hesitation around cutting rates further is inflation. And that concern is legitimate: tariffs tend to drive up domestic prices. The hope is that weaker demand could help offset this inflationary pressure.

How low can the dollar go?
During Trump’s first term, the DXY fell below 89 – so further downside isn’t off the table. That said, if tariffs remain in place, US imports are likely to decline. Lower imports mean less demand for foreign currencies, which could support the dollar. However, any such effect would likely take time to materialize.

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