Dollar Decline Raises Concerns on Its Future Reserve Status

On Monday, the U.S. dollar plunged to its lowest level in three years, as escalating friction between President Donald Trump and Federal Reserve Chairman Jerome Powell rattled global investors and weakened confidence in the American economy.

Against a basket of major currencies, the ICE U.S. Dollar Index slumped to 97.923, a level not seen since March 2022. The euro climbed above $1.15, while the dollar hit a decade-low against the Swiss franc and a seven-month low against the Japanese yen.

Testing the Dollar’s Reserve Status

The recent decline in the U.S. dollar has sparked concerns among market participants. There is a growing apprehension that the drop reflects a deeper investment unease as President Trump attempts to modify global trade dynamics. The dollar’s long-standing dominance in international trade benefits from low U.S. borrowing costs and amplifies American geopolitical influence. Economists warn that this trust, built over decades, could be swiftly undermined.

Financial institutions like Deutsche Bank and Capital Economics have highlighted the growing “confidence crisis” and questioned the dollar’s future reserve status. The implications are not just for financial markets but could reflect broader geopolitical shifts if trust in the dollar’s reliability as a safe-haven currency continues to weaken.

What’s Driving the Decline?

President Trump intensified his criticism of Powell on Monday through social media, labeling the Fed chair a “major loser” and demanding immediate interest rate cuts. This followed earlier comments where Trump stated Powell’s termination “cannot come fast enough.”

The situation grew more concerning for markets after White House economic adviser Kevin Hassett confirmed that the administration was exploring whether they could remove Powell from his position—an unprecedented move that would challenge the central bank’s independence.

Economists warn that undermining the Federal Reserve’s independence could have serious consequences, particularly if the central bank’s mandate becomes politicized, as policymakers might struggle to control inflation effectively.

The dollar’s weakness extends beyond the Fed controversy. Trump’s sweeping tariffs and unpredictable trade policies have darkened the outlook for the U.S. economy, leading investors to pull money out of American assets. Implementing global reciprocal tariffs appears to have triggered the latest bout of dollar selling.

Impact on Markets

Markets reflected this uncertainty, with all three major indexes dropping more than 2% on Monday. The tech-heavy Nasdaq was hit particularly hard, dragged down by steep losses in the “Magnificent Seven” megacap growth stocks.

Trading was relatively thin on Monday, with many global markets closed for Easter Monday holidays.

Other currencies benefiting from the dollar’s slide include the British pound, which rose to its highest level since September at $1.34, and the Australian dollar, which reached a four-month high. The New Zealand dollar also reclaimed the $0.60 level for the first time in over five months.