Dollar slides as ‘loss of confidence’ in US policy spikes debasement fears
The US dollar had its worst day since President Donald Trump’s ‘Liberation Day’ tariff onslaught on Tuesday as investors dumped their exposure to the greenback.
The DXY index – which tracks the dollar against a basket of other currencies – has slumped over two per cent since the beginning of the year.
Amidst the dollar woes, the pound has rallied to levels not seen since September 2021, hitting the $1.37 mark before giving up some gains.
Losses have worsened after Trump shrugged off the greenback’s fall: “I think it’s great,” the President told reporters after he was questioned on the currency’s latest move.
Lee Hardman, senior currency economist at MUFG, said: “The loss of confidence in the US policymaking has triggered renewed fears over currency debasement.”
The greenback’s decline has given a fresh shot of energy to gold, which breezed past $5,200 after a 1.1 per cent gain in its latest blistering rally.
“That sound you hear is that of 2026 gold targets being furiously revised higher, as the price keeps climbing, and given renewed impetus by Trump’s comments on the dollar,” Chris Beauchamp, chief market analyst at IG.
Dollar debasement fears run rife
Beauchamp said those believing in the debasement trade would be “cheering in their seats” with the latest moves “reinforcing their thesis”.
Debasement trade refers to an investment strategy where market participants sell the US dollar and Treasury bills to buy assets such as gold or silver because they fear government policy is eroding the currency’s value. In the case of the dollar, economists have raised questions about whether Trump is intentionally weakening its value.
Hardman said Trump’s fresh comments “reinforce the impression amongst market participants that the Trump administration wants a weaker US dollar to support the manufacturing sector by improving external competitiveness.”
Economists have also pointed to Trump’s continuous attacks on the Federal Reserve as ramping up debasement.
The Federal Reserve is expected to hold interest rates today as policymakers at the central bank meet to discuss the labour market and inflation.
Tensions between Trump and Fed Chair Jerome Powell have flared up after the Department of Justice launched a criminal investigation into Powell over testimony he gave to a Senate committee about renovations to Federal Reserve buildings.
“The dollar debasement trade is also linked to the challenge to Fed independence,” said Kathleen Brooks, research director at XTB.
“Jerome Powell made it clear that pressure from the White House to lower interest rates was unacceptable. He may reiterate the importance of Fed independence at today’s press conference”.
The Supreme Court is also set to hear arguments regarding Trump’s removal of Lisa Cook from the Fed’s board of governors on Wednesday.
In August last year the President said he was ousting Cook – a governor at the central bank – after he accused her of engaging in mortgage fraud, which she has denied.