The U.S. dollar was riding high at the start of 2025...
By mid-January, it had jumped to its highest level since 2022. It was a massive rally that had started just before the November presidential election.
Donald Trump's victory was initially great for the currency. But as tariffs moved from a bargaining chip to a reality, the good times quickly ended.
Now, the dollar is down 5% from its January high. The worst of that fall included a 3.5% decline over a single week in early March.
Importantly, that week was the worst for the buck since 2022. And we need to pay attention. History shows we should expect more losses in the months ahead...
Nothing happens fast in major global currencies. They tend to move slowly. It can take years to see a 5% or 10% move in either direction – at least, that's the conventional wisdom.
There's always an exception to the rule, though. And the U.S. dollar has been the exception in recent weeks. Take a look...
The reality of tariffs sank in for investors. It took a toll on stocks... and put the overall health of the economy in question.
To the world, tariffs make the U.S. dollar look less stable and less appealing. So the dollar plunged as well.
Now, it's unusual for the dollar to fall 3.5% or more in one week. We've only seen that happen 15 other times over 54 years of history. And this rare setup points to more losses ahead. Take a look...
As you'd expect, the dollar has gone nowhere since roughly 1971. The U.S. Dollar Index was around 120 back then. Today, it trades below 105. That's an annual decline of about 0.3%.
But trends do emerge within those long stretches. And big down weeks usually mean more losses are on the way...
Similar instances led to 3.9% losses over six months and 4.4% losses over a year. Those might not seem like huge numbers, but they're large for a currency. Plus, the dollar was down over the next six months 80% of the time.
Most investors are too focused on the recent carnage in stocks to notice the big fall in the dollar. But this year has been a whirlwind for the currency... from a multiyear high in January to its worst week in years in March.
According to this setup, we can expect the pain to continue... with even lower levels likely in the months ahead.
Good investing,
Brett Eversole
Further Reading
"Some of America's biggest policymakers have knives out for the dollar," Sean Michael Cummings writes. Despite making a 52-week high earlier this year, the dollar's long-term bear market is still in place. And investors need to prepare for further volatility as the potential "Mar-a-Lago Accord" nears reality... Learn more here.
The dollar's recent rally spelled bad news for other global currencies. To end 2024, investors were the most bearish they've been on the euro since 2020. But history shows this is a great contrarian indicator – and it could lead to a double-digit euro rally this year... Read more here.
