Trump's global tariffs cause US dollar index to collapse

On Thursday, April 3, the US dollar suffered its biggest decline in 2.5 years, according to the Bloomberg Dollar Spot Index (BBDXY), which dropped 1.77%.

Photo: commons.wikimedia.org by Jason Zhang, https://creativecommons.org/licenses/by-sa/3.0/

Dollar bills

This decline comes in response to import tariffs that US President Donald Trump imposed the day before against various countries around the world.

The BBDXY index includes the currencies of the 12 largest US trading partners, many of which were affected by the new tariffs.

With investors predicting that the tariffs will slow the US economy, pressure on the dollar has intensified, preventing the currency from benefiting from its traditional safe-haven status during market turbulence, experts say. In light of this, Deutsche Bank and several other financial institutions have warned of a potential crisis of confidence in the dollar.

The Bloomberg Dollar Spot Index (BBDXY) tracks the performance of a basket of currencies from developed and emerging markets against the US dollar. It includes most liquid currencies in global forex markets. The basket consists of the currencies of USA's 12 largest trading partners: the euro, Japanese yen, Canadian dollar, British pound, Mexican peso, Chinese yuan, Swiss franc, Australian dollar, South Korean won, Indian rupee, Singapore dollar, and New Taiwan dollar.

Meanwhile, the US Dollar Index (DXY), which measures the value of the US dollar against six major global currencies, dropped as much as 2.23% on Thursday to a low of 101.372 points. This index includes the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc and is calculated by the Intercontinental Exchange (ICE).

Trump's Tariff Announcement

On Wednesday, April 2, US President Donald Trump announced new import tariffs on various countries. He justified the move by stating that the US had been plundered, abused, and robbed by nations both near and far, friends and foes alike. The tariffs will range from 10% to 50%, depending on the country.

Trump called April 2 the day of America’s economic liberation.

A baseline 10% tariff on goods shipped to the US will take effect on April 5. An exception will be made for goods already loaded onto vessels and in the final stages of transit before this date. Reciprocal tariffs for certain countries will go into effect on April 9.

Details

The United States dollar (symbol: $; currency code: USD; also abbreviated US$ to distinguish it from other dollar-denominated currencies; referred to as the dollar, U.S. dollar, American dollar, or colloquially buck) is the official currency of the United States and several other countries. The Coinage Act of 1792 introduced the U.S. dollar at par with the Spanish silver dollar, divided it into 100 cents, and authorized the minting of coins denominated in dollars and cents. U.S. banknotes are issued in the form of Federal Reserve Notes, popularly called greenbacks due to their predominantly green color. The U.S. dollar was originally defined under a bimetallic standard of 371.25 grains (24.057 g) (0.7734375 troy ounces) fine silver or, from 1834, 23.22 grains (1.505 g) fine gold, or $20.67 per troy ounce. The Gold Standard Act of 1900 linked the dollar solely to gold. From 1934, its equivalence to gold was revised to $35 per troy ounce. In 1971 all links to gold were repealed. The U.S. dollar became an important international reserve currency after the First World War, and displaced the pound sterling as the world's primary reserve currency by the Bretton Woods Agreement towards the end of the Second World War. The dollar is the most widely used currency in international transactions, and a free-floating currency. It is also the official currency in several countries and the de facto currency in many others, with Federal Reserve Notes (and, in a few cases, U.S. coins) used in circulation.