The sharp decline of the US dollar is behind a "global conspiracy"?

The "abnormal" weakening of the dollar: does this mean the collapse of a century-long "dollar hegemony"?

Recently, the dollar has been "falling continuously." On Monday, the dollar index accelerated its decline, dropping more than 1% during the day, and breaking through the important thresholds of 99 and 98 for the first time since March 2022.

Regarding the recent decline of the dollar, the market generally believes that U.S. government policies are undermining the international status of the dollar, exacerbating expectations of dollar depreciation. Within the Trump administration, there is a belief that a strong dollar is a burden for the U.S., distorting the currency market and placing undue burdens on American businesses and workers.

Some analysts further point out that whether the status of dollar assets is weakened or lost will be key to determining Trump's success or failure.

China "stays put," Japan sends signals: Is there still room for the dollar to decline?

In addition to the impact of U.S. tariff policies, the dollar is also under multiple pressures.

The People's Bank of China announcement shows that the LPR remained unchanged for the sixth consecutive month in April, reflecting confidence in economic growth momentum, which poses pressure on the dollar.

According to media reports, Japanese Prime Minister Shigeru Ishiba recently expressed hope that the ongoing U.S.-Japan tariff negotiations would become a "model for negotiations between the U.S. and other countries," emphasizing that "the outcome of a zero-sum game will not serve as a model for other countries," hinting at reaching an agreement beneficial to both countries.

This subtle change in wording, combined with the yen's characteristics as a safe-haven currency, may further strengthen the yen and indirectly suppress the dollar.

Meanwhile, Goldman Sachs recently warned that the negative trends in U.S. governance and institutions are eroding the "privilege" that U.S. assets have long enjoyed, which is dragging down U.S. asset returns and the dollar. Unless reversed, this situation may continue to exist in the future.

Goldman Sachs, which previously held an optimistic view of the dollar, now predicts that within the next 12 months, the dollar will fall to 135 yen, equivalent to a further depreciation of 6% from current levels.

Market vs. Trump administration: starkly different interpretations of the dollar's decline

The market's interpretation of the dollar's decline contrasts sharply with the Trump administration's stance.

Reports indicate that analysts and investors generally believe that the shift in the U.S. attitude towards its allies and trade protectionist policies are shaking the dollar's status as a reserve currency.

Wall Street is concerned that the Trump administration's policies are accelerating the decline of the dollar, potentially leading to turmoil in global financial markets. PGIM's co-chief investment officer for fixed income, Gregory Peters, stated:

"The U.S. has benefited from its reserve currency status for 100 years, and now it has been canceled in less than 100 days; this is a big deal." George Saravelos, the global foreign exchange research head at Deutsche Bank, wrote in a report last Friday:

"Although President Trump has made concessions on tariffs, the damage to the dollar has already been done. The market is reassessing the structural appeal of the dollar as the world's global reserve currency and is undergoing a rapid process of de-dollarization."

In stark contrast to market concerns, many in the Trump administration believe that a strong dollar is a burden for the United States.

This viewpoint holds that the dollar's status as a reserve currency does more harm than good, as an excessively strong dollar undermines the competitiveness of American exporters. Stephen Miran, chairman of the Council of Economic Advisers under the Trump administration, explicitly stated in a speech last week:

"While the demand for the dollar does keep our borrowing costs low, it also distorts the money markets. This process imposes undue burdens on our businesses and workers, making their products and labor less competitive on the global stage."

Whether intentional or not, nearly every action taken by the Trump administration in its first three months has severely impacted the support level of the dollar. Last week, the dollar index fell by 2.8%, marking the seventh worst weekly performance in thirty years, with a cumulative decline of 8.2% this year.

Is it chaos or strategy?

The fundamental reason for the divergence in views on the dollar between the market and Trump lies in their differing perspectives.

From the market's viewpoint, the dollar, typically seen as a safe-haven asset, has paradoxically weakened in the face of financial market volatility, reflecting a shake-up in the dollar's dominance, which is a manifestation of disorder and chaos.

However, some analysts believe that for the Trump administration, "chaos itself" is actually a strategy. Trump views Powell as an obstacle, and within this framework, Federal Reserve Chairman Powell is either forced to cut rates or faces the risk of being fired. The resulting market volatility is not collateral damage but a means to accelerate the capital "devirtualization."

Sarah Bianchi, a senior analyst at Wall Street investment bank Evercore ISI, warned:

"What we are really concerned about is that while Trump may be able to reach some agreements on tariffs, the issue is that when the U.S. faces a broader crisis of trust, even a complete retreat on trade may be of no avail."

This means that whether the status of dollar assets is weakened or lost will be key to determining Trump's success or failure.

What’s next for the dollar?

Looking ahead, opinions on the dollar's prospects are mixed.

Mark Sobel, chairman of OMFIF (a financial think tank) and a former senior Treasury official, believes:

"Although the dollar's dominance will remain unchanged in the foreseeable future, as there are no viable alternatives, the value of the dollar may continue to decline."

Sobel further pointed out that the trade war is just the latest example of this administration's "contempt for other parts of the world," and as a key pillar of the dollar's dominance, "trustworthy partners and allies" have been cast aside Long-term foreign exchange strategist and head of Eurizon SLJ Capital, Stephen Jen, is more pessimistic. Jen believes that the current US dollar is actually overvalued by about 19% against major currencies. If a strong recession in the US forces the Federal Reserve to cut interest rates significantly, cyclical, structural, and political factors will work together to lead to a substantial depreciation of the dollar:

"Various factors are converging, and the dollar will enter a multi-year correction phase."

"For many years, the overvaluation of the dollar has been a factor contributing to the decline in US competitiveness, and the expanding trade deficit and tariffs are a response to this unfavorable reality."

Former New York Federal Reserve Bank President Bill Dudley believes that the dollar could even strengthen.

According to Dudley, tariffs will weaken the US economy and exacerbate inflation, while the impact on economic growth in other regions may be more pronounced. This means that other central banks may cut interest rates more aggressively than the Federal Reserve, potentially leading to a depreciation of these countries' currencies against the dollar