US Dollar Forecast: DXY Drops Below 100 as China Tariffs, Yields Weigh on Greenback

Dollar Slides as Trade Tensions Trigger Investment Reallocation

The U.S. dollar extended its recent slide on Friday, falling sharply across major currency pairs as escalating trade tensions prompted a realignment in global capital flows. DXY fell to 99.014—its lowest since April 2022—reflecting the market’s waning confidence in the greenback as a safe-haven asset.

On Friday, the U.S. Dollar Index settled at 99.783, down $1.130 or -1.12%.

Tariff Escalations Fuel Currency Realignment

China’s decision to raise tariffs on U.S. imports to 125%, up from 84%, came in response to the White House’s earlier hike on Chinese goods to 145%. Though the U.S. eased tariffs on most other countries to a flat 10%, the bilateral trade strain with China has reignited investor risk aversion. FX strategists pointed to foreign capital pulling back from U.S. assets, with many reallocating into the eurozone and hedging U.S. currency risk.

This repositioning saw the dollar hit a decade-low against the Swiss franc and a three-year low versus the euro. The euro surged to $1.14735, before settling at 1.13583, up 1.43%, while the pound added 0.89% to $1.30824. The yen also gained, with the USD/JPY falling to its weakest since September 2024.

Treasury Market Signals Broader Repricing

The bond market responded sharply. The benchmark 10-year Treasury yield surged 9 basis points to 4.486%, capping a historic weekly climb of over 50 basis points—the largest since 2001. Traders speculated that China and Japan were reducing their Treasury holdings, reversing traditional safe-haven flows.

This Treasury selloff prompted scrutiny from the White House, with officials acknowledging that market moves may have influenced recent trade recalibrations. Analysts noted that rising yields undermine low-cost financing—central to current U.S. fiscal strategy—thereby heightening political sensitivity.

Confidence in U.S. Assets Erodes

Investor sentiment deteriorated further following weak consumer confidence data and the highest 12-month inflation expectations since 1981. Fed officials, including Neel Kashkari, highlighted the unusual trend of a weakening dollar despite protectionist policy—suggesting that global confidence in U.S. economic leadership may be slipping.

Meanwhile, spot gold surged to $3245.49, before settling at $3237.93, up 1.97%, supported by haven demand, while ECB President Christine Lagarde reaffirmed readiness to support financial stability in Europe.

Outlook: DXY Faces Structural Headwinds

With trade tensions prompting capital flight and U.S. yields spiking, the dollar’s weakening is no longer solely about monetary policy expectations.

As credibility concerns grow and diversification intensifies, DXY may remain under pressure unless policy clarity returns.

FX markets appear to be repricing the greenback’s safe-haven status, and unless investor confidence stabilizes, the “great rotation” away from U.S. assets may continue.

More Information in our Economic Calendar.