If we talk about turmoil, Trump is now second, and no one dares to claim the first position. Previously, using reciprocal tariffs almost brought U.S. Treasury bonds to collapse. Last week, Trump mentioned considering replacing the Federal Reserve Chairman, which raises questions about the Fed's independence, further damaging investors' confidence in the U.S. economy. Hedge funds aggressively sold dollars against almost all currencies, causing the dollar index to plummet by more than 100 points, briefly falling below the 98 mark.
It can be seen that the dollar index has already fallen by nearly 10% this year. In contrast, the yen has appreciated by 10% against the dollar, the euro by 11%, and the pound by nearly 7%. However, the offshore yuan has not appreciated against the dollar, meaning that the yuan has depreciated synchronously against the euro and yen.
Previously, some institutions calculated that due to the narrative of 'American exceptionalism' over the past years, the bull market in dollar assets attracted funds to overweight dollar assets by 20%, meaning the dollar is overvalued by 20%. If 'American exceptionalism' is broken, or even switches to 'American skepticism', the dollar's decline could be beyond imagination.
The key is that Trump seems to enjoy dancing on a minefield. The tariffs haven't been successfully implemented, and now he wants to remove Federal Reserve Chairman Powell. If the Fed loses its independence, Trump could lower interest rates at will, which would intensify market skepticism about the U.S. economy and the dollar.
The result of the dollar's plunge is a surge in gold, with spot gold increasing by 2%, reaching a record $3,393.1. Besides gold, Bitcoin also suddenly surged nearly $2,000, breaking the $87,000 mark. This may be due to gold rising too high, prompting some funds to shift towards Bitcoin out of fear of high prices.
For Trump, a weakening dollar seems to be a good thing, as his demand is for a weak dollar, which benefits exports. However, under high tariffs, a weakening dollar may exacerbate the burden on residents.
For other countries, a weakening dollar is catastrophic. As mentioned, the euro has appreciated by more than 10% this year, but the European economy is actually much worse than the U.S. Now that the euro has appreciated, export pressure increases. The same reasoning applies to other countries.
Here lies a possibility: if the dollar continues to weaken, other countries may resort to interest rate cuts and monetary easing to competitively devalue their currencies in order to ease export pressures, leading to unimaginable impacts on the global economy. The experience from the 1930s Great Depression indicates that when major economies fall into a 'beggar-thy-neighbor' devaluation cycle, global trade volumes will spiral downwards.
