Dollar Index slides to 3-year low on trade war uncertainties

Has Donald Trump killed "King Dollar?" Just months ago, the "Trump trade" reflected conventional wisdom that tariffs would drive the greenback higher. (Eastern European currencies, for example, were getting crushed.)

Instead, the Dollar Index (DXY) - which measures the greenback against the currencies of major US trading partners - has been tumbling, reaching the lowest since 2022. As a global trade war gathers pace and as Trump appeared to threaten Federal Reserve Chair Jerome Powell, perceptions of the dollar and US Treasuries as safe havens have been shaken.

To easily break down each currency's real-time contribution, we've charted DXY since last summer on a logarithmic scale, which measures change versus the 2020 average.

Broad strength since Trump's election win lasted until January. A gradual drift lower through February and March quickened after the "Liberation Day" tariffs of early April sparked market mayhem.

The two currencies with the biggest weighting in DXY are the euro and the yen; accordingly, JPY (in light green) and EUR (in teal) dominate our stacked bar chart visualization. It's notable that the EUR's uplift to DXY disappeared in early April, while JPY's impact remained constant. (Indeed, the USD appreciated against the JPY after the initial tariff moves, likely from risk-off sentiments working against the Asia-Pacific region.)