The dollar ended the week with its most significant drop in 14 months as currency traders continue to navigate through President Donald Trump’s tariff rhetoric without any concrete action. The Bloomberg Dollar Spot Index closed 1.6% lower from the previous week — marking the sharpest one-week decline since November 2023, when the Federal Reserve completed a monetary policy tightening cycle. The reserve currency’s losses deepened after Trump hinted at easing his stance on tariffs against China.
Trump’s threats against key US trading partners like Canada and Mexico have unsettled markets, but no actual executive orders imposing specific tariffs have been signed yet. He has instructed the Treasury and Commerce departments to assess current trade relations and submit their findings by April 1.
According to Matthew Hornbach, Morgan Stanley’s head of macro strategy, investors were hesitant to sell dollars before the inauguration in anticipation of immediate tariff implementation by Trump. However, with no tangible actions taken, investors now feel more comfortable making moves.
The pound saw the most gains against the dollar in the G-10 currencies, rising over 2.5% for the week supported by strong UK manufacturing and services data released on Friday. The euro also recorded its best week since 2023, as Trump’s trade focus has primarily been on Canada and Mexico rather than the eurozone.
Goldman Sachs’ currency strategists noted that traders had unwound around two-thirds of the tariff risk premium priced into the euro-dollar pair, despite anticipating US economic outperformance and trade measures to bolster the greenback in the coming months.
Morgan Stanley’s strategists have been cautioning that traders are increasingly looking for opportunities to sell the dollar, resulting in one of the most bearish forecasts for the greenback among surveyed strategists. The dollar and long positions have surged since Trump’s election victory in November, but this week’s decline could be a temporary correction as traders recalibrate their positions.
MUFG currency analysts, including Derek Halpenny and Lee Hardman, believe the retreat in the dollar could be short-lived, as they anticipate Trump actively deploying tariffs in the near future. They remain convinced that the market’s interpretation of tariffs could drastically change by the end of the following week.
In conclusion, while the dollar experienced significant losses this week, the overall outlook remains uncertain as traders continue to navigate through Trump’s tariff rhetoric and potential actions in the coming weeks.
