The United States dollar has dropped to its lowest points in 14 months, as traders continue to dump the asset after a week filled with United States President Donald Trump making trade threats.
According to the Bloomberg Dollar Spot Index, the currency took a massive hit, dropping 1.7% since Friday. This is the sharpest decline since the one that happened in July 2023, after the Federal Reserve finalized a long period of monetary tightening.
While Trump has issued trade threats to major trading partners like Canada and Mexico, he has yet to sign an executive order to enforce tariffs against them. However, he has instructed the Treasury and Commerce departments to assess trade relations and submit a report in April.
Investors anticipate a US dollar sell-off
According to currency traders, the dollar is overvalued, a notion that has been discussed in the market in the last few months. With that information, they are expecting a correction. According to an expert, traders were holding off on selling because of a potential Trump tariff. But now that it is not coming forth, they are free 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,” the analyst added.
The correction has spelled well for other currencies, with the British pound seeing about 2.5% against the dollar. The euro has also posted remarkable returns, a feat it last saw in 2023. Morgan Stanley has warned against the building tide against the currency, with the bank having one of the bearish outlooks against the currency. While dollar bulls are loud and active, there’s a quieter but substantial group of investors ready to bet against the currency,” the bank said.
The data is enough to back up the sentiment in the market. According to data from the Commodity Futures and Trading Commission (CFTC), traders are holding bullish dollar positions worth $34.6 billion, the highest since 2019. However, there are risks of a major reversal, seeing that the dollar has only gone up by 3% since Trump’s victory at the polls in November. Meanwhile, the currency has grown against the currencies of major competitors, as traders begin to focus on Trump’s actions, rather than his words.