US dollar index slips below 100 for the first time in nearly 2 years. What's driving the greenback lower?

The US dollar index, which measures the greenback against six major peers, extended its decline to the fourth straight session on Friday, April 11, tumbling 2% to slip below the 100 mark for the first time since July 2023, reaching 99.02. With today's fall, the US dollar has lost 4.21% of its value so far in April and is down 9.31% from its January peak of 110.

Investor confidence in US stocks appears to be weakening, as evidenced by the sharp sell-off seen in recent weeks, which has pushed benchmark indices into bear market territory. US President Donald Trump’s aggressive tariffs on trading partners have raised fears that the US could face significant economic consequences, potentially slipping into a recession.

These concerns have led investors to flee US assets, causing stock markets to bleed and putting significant pressure on the US dollar.

Trade war heats up

On Thursday, White House officials confirmed a hike in tariffs on Chinese goods to 145%, up from 125% earlier. In response, Beijing raised its tariffs on US imports to 125% on Friday, retaliating against President Trump’s move and further escalating a trade conflict that threatens to disrupt global supply chains.

During his first term, Trump’s tariff threats brought world leaders to the negotiating table. This time, his actions have triggered steep retaliation from China and promises from European allies to push back.

Fears of slowing US growth have driven investors toward safer currencies such as the Japanese yen and Swiss franc. The dollar slid to its lowest level in 10 years against the Swiss franc and hit a six-month low against the yen in today's session. 

The euro surged 1.7% to $1.13855 today, a level last seen in February 2022, while gold—viewed as a safe haven during times of crisis—hit another record high.

The trade war between the world’s two largest economies is raising the odds of a global economic fallout, as the US and China together account for 45% of global GDP.  Meanwhile, US Treasury Secretary Scott Bessent shrugged off the renewed market turmoil on Thursday, saying that striking deals with other countries would ultimately bring greater certainty.

Trump’s tariffs spark Fed warning

Federal Reserve Chair Jerome Powell warned that the Trump administration’s tariffs are likely to boost inflation and hinder economic growth. According to the minutes released on Wednesday, Fed participants noted that uncertainty around the economic outlook had increased, with most viewing inflation risks as tilted to the upside and employment risks to the downside.

The dollar index had rallied sharply following Trump’s win on November 5 and continued to climb over the next two months, briefly trading above 110 in mid-January. Since then, it has been retreating amid growing signs of economic weakness in the US and as Trump’s trade policies turned out to be more aggressive than expected.

Citi warns of US slowdown despite tariff pause

Although the Trump administration paused reciprocal tariffs on major trading partners—including India—for not retaliating, global analysts say the US cannot avoid a slowdown. 

On Thursday, global brokerage firm Citi said that the United States is likely to face slower growth and higher inflation.

Analysts at the firm noted that trade-related uncertainty would persist, and non-China imports may surge. “We continue to expect the Fed to cut policy rates in May or June. Trump’s 90-day tariff pause does not appear to affect duties on autos, steel, and aluminum that are already in place,” Citi said.

“It seems likely that the US president blinked when confronted with the prospect of a recession, political backlash, a near-bear market, and early warning signs of a financial crisis,” Kyle Rodda, an analyst at Capital.com, told Reuters.

Dimon’s caution: Tariffs may backfire

JPMorgan CEO Jamie Dimon has earlier issued a stark warning about the risks posed by President Trump’s tariff strategy, cautioning that the escalating trade measures could stoke inflation, slow global growth, and damage America’s strategic position, as reported by CNN.

In his annual letter to shareholders, Dimon said the latest wave of tariffs “will likely increase inflation and are causing many to consider a greater probability of a recession.” While he stopped short of predicting a full-blown downturn, he acknowledged that the tariffs could undermine economic momentum.

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