US dollar tumbles to 14-month low after trade pressures subside

The US dollar has hit its lowest point in 14 months, with traders dumping the currency after a rocky week filled with trade threats from Mr. President Donald Trump.

The Bloomberg Dollar Spot Index took a heavy hit, dropping 1.7% since last Friday. This is its sharpest weekly fall since July 2023, when the Federal Reserve ended a prolonged period of monetary tightening.

While the president has consistently threatened major trade partners like Canada and Mexico, actual executive orders to enforce tariffs remain nonexistent. Instead, Trump has instructed the Treasury and Commerce departments to assess trade relations and provide a report by April 1.

Investors brace for a dollar sell-off

Currency traders are now starting to act on what they’ve been predicting for months: the dollar is overvalued and set for a correction.

Matthew Hornbach, Morgan Stanley’s head of macro strategy, said investors were cautious about selling the dollar so early in Trump’s term, unsure whether he would push through tariffs immediately. Now that Trump has held back on action, traders feel freer to move.

“The further we get into President Trump’s second term, the more comfortable investors are becoming with expressing their views. The dollar is rich, interest rates are high, and both are ripe for a correction,” Hornbach said.

The correction has already benefited other major currencies. The British pound surged more than 2.5% against the dollar this week, buoyed by strong manufacturing and services data out of the UK. The euro also had a strong showing, recording its best weekly performance since 2023.

Much of Trump’s trade rhetoric has focused on North American trading partners like Canada and Mexico, leaving the eurozone out of his direct crosshairs — for now.

Meanwhile, Morgan Stanley strategists warn that the tide against the dollar is building. The bank has one of the most bearish outlooks on the greenback among those surveyed by Bloomberg.

“While dollar bulls are loud and active, there’s a quieter but substantial group of investors ready to bet against the currency,” they said.

The data backs up this sentiment. Futures data from the Commodity Futures Trading Commission (CFTC) shows traders holding $34.6 billion worth of bullish dollar positions, the highest since 2019. But with the dollar gauge up just 3% since Trump’s November victory, there are risks of a major reversal.

But the dollar has gained over 2% in the past quarter against currencies like the Mexican peso, Canadian dollar, and Chinese yuan. However, many traders have opted to focus more on Trump’s actions—or lack thereof—rather than his words.

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