The value of the US dollar plummeted amid fallout in financial markets following the tariff announcement of Donald Trump’s “liberation day” on April 2nd.
However, although the US stock market has been recovering largely since then, greenbacks have continued their downward trajectory, usually gaining value during periods of financial turbulence.
This is because the harsh nature of Trump’s international trade policy has increased the possibility of a US recession, which has stopped demand for American currency later this year.
Trump’s tariff blitz also forces investors to confront the possibility that dollar control is declining or could come to an end.
“The world is facing a crisis of dollar trust as the effects of ‘liberation day’ continue to echo,” a Deutsche Bank analyst wrote in a recent note to clients.
For nearly a century, the United States has been a global investment “safe shelter.” Dozens of countries still maintain green-back pegs. In other words, currency prices are correlated.
However, investors are now beginning to worry about the long-term security of the dollar, and the outcome could be dramatic.
What happened to the dollar?
On April 2, the Trump administration punished tariffs on imports from dozens of countries around the world, thwarting confidence in the world’s largest economy, and causing a sale of US financial assets.
Over $5 trillion has been erased from the value of the Benchmark S&P 500 Stock Index, three days after the “Freeing Day.”
The US Treasury Department has long been considered a typical safe investment, but saw sales, reduced prices and sent US government debt costs significantly higher.
Facing a financial market rebellion, Trump announced a 90-day suspension of tariffs on April 9, excluding exports from China.
So far, in April it has dropped by 3% compared to baskets of other currencies, reaching its lowest level in three years, worsening almost 10% since its launch in 2025.
“Investors are selling US assets and the dollar has fallen,” Karsten Junius, chief economist at Bank J Safra Sarasin, told Al Jazeera.
“However, the dollar has not risen much, as trust is lost in US economic policymaking (as the US stock price since April 9th),” he added.
Why is the US dollar so important?
For the past 80 years, the US dollar has held a major reserve currency status. This is a large amount of foreign currency held by financial authorities around the world.
For the most part, World War I and World War II made the dollar a commanding world currency. When Europe and Japan were in turmoil, the US was making money.
Then, in 1971, when Richard Nixon blew the value of gold out of the value of the US dollar, the role of greenback in supporting the global financial system grew. This was the same as the demand.
Following the “Nixon Shock”, most countries abandoned gold conversion, but did not adopt market-determined exchange rates. Instead, they pinned the currency to the dollar.
Due to trade and financial control, the dollar has become the standard currency anchor. For example, in the 1980s, many Gulf countries began to lock their currencies into greenbacks.
The impact didn’t stop there. According to the Atlantic Council, the United States accounts for a quarter of total world product (GDP), but 54% of global exports were derived in USD in 2023.
Its advantage in finance is even greater. Approximately 60% of all bank deposits are sected in dollars, but nearly 70% of international bonds are cited in US currency.
Meanwhile, according to the IMF, 57% of assets held by central banks around the world (assets held by central banks around the world) own assets from around the world.
However, the dollar’s reserve status is heavily supported by confidence in the US economy, its financial markets, and the legal system.
Trump is changing that. “He doesn’t care about international norms,” Junius said, “Investors are beginning to notice that they are overexposed to US assets.”
In fact, foreigners own $19 trillion in US stocks, $7 trillion in US Treasury and $5 trillion in US bonds, according to Apollo Asset Management. This is about 30% of global GDP.
If even some of these investors begin to cut their positions, the value of the dollar can be subject to sustained pressure.
What are the consequences of low value dollars?
Many Trump teams argue that the cost of the US dollar’s reserve state will outweigh profits by overvaluing it and increase the costs of US exports.
Stephen Milan, chairman of Trump’s Economic Advisory Council, recently said the high valuations “will put an undue strain on our businesses and workers, making our products and labor uncompetitive at the global stage.”
“Overvaluation of the dollar is one of the factors contributing to the long-standing loss of US competitiveness, and … tariffs are a response to this unpleasant reality,” he added.
At first, a dollar is less, US goods become cheaper for overseas buyers, supporting domestic manufacturing and helping to reduce the country’s trade deficit.
“It would also make imports more expensive and hurt consumers,” Jose Antonio Ocampo, former finance minister for Colombia, told Al Jazeera. “The general view is that inflation in the US will increase.
“Other places, gold prices have also risen,” Ocampo said. “It appears that among central banks it is favored to hold money on behalf of the US Treasury Department.”
Ocampo said he believes his confidence in the dollar has been hit as a result of Trump’s tariff announcements, and believes the sale was offset by the interests of other safe vessel currencies.
On April 11, the euro hit a three-year high of over $1.14, winning more than 5% since the beginning of the month.
Can another currency take the place of the dollar as the ruler of the world?
“For now, I think the dollar will remain the dominant global currency,” Ocampo said.
But he also said that by weakening the US economic foundation, Trump is undermining global control of the dollar. On his part, Ocampo mentioned two currencies that stand to earn profits.
“We’ve seen an influx into the Swiss franc recently, but the euro is a real alternative to the dollar,” he said.
The euro currently accounts for 20% of the international foreign exchange reserve. This is one-third of the dollar amount.
“If the EU can agree to a closer fiscal coalition, importantly, if more integration can be made across its financial markets, it will be a currency that can take on the mantle,” Ocampo said.