The dollar index hovered around 98.4 on Tuesday, stabilizing after hitting a fresh three-year low in the previous session, as investors continued to grapple with mounting concerns over the Federal Reserve’s independence and the potential economic damage from a deepening global trade war.
Dollar languishes at three-year low
The greenback’s recent slide reflects growing unease about the political pressures facing US monetary policy and broader doubts about the strength of the US economy in the face of escalating external risks.
President Donald Trump renewed calls for immediate interest rate cuts, arguing that the Fed needed to act quickly to shield the economy from slowing growth and rising trade tensions. His criticism targeted Fed Chair Jerome Powell, who has emphasized a more cautious, data-driven approach, preferring to assess the impact of tariffs and other headwinds before making major policy moves. The White House’s open discussion of potentially removing Powell sparked alarm among investors, raising fears of direct political interference in the central bank’s decision-making process. Such a move could deal a significant blow to the Fed’s credibility, undermining confidence in US institutions and making the dollar less attractive as a global reserve currency.
Trade war hits market sentiment
Meanwhile, market sentiment was further dented by the continued stalemate in US-China trade negotiations. Hopes for a breakthrough dimmed after China accused the United States of weaponizing tariffs for political gain and warned other nations against signing agreements that might compromise their own economic sovereignty. The increasingly confrontational rhetoric between the two powers has fueled worries of a prolonged trade conflict that could significantly disrupt global supply chains and slow down international trade flows, compounding downside risks for the global economy.
In currency markets, the dollar has dropped nearly 6% so far this month, its steepest monthly decline in years. The losses have been particularly sharp against traditional safe-haven currencies, with the euro, Japanese yen, and Swiss franc all registering strong gains. Analysts note that the greenback’s retreat reflects not only heightened risk aversion but also a recalibration of interest rate expectations, as markets price in a greater likelihood of aggressive Fed easing in the coming months.
What's next
Looking ahead, the dollar’s outlook remains highly uncertain, with investors closely watching upcoming US economic data, developments in US-China relations, and any further signals from the Federal Reserve regarding its policy stance. Without a clear resolution to the trade disputes and ongoing political volatility at home, the greenback could remain under sustained pressure.
