US Dollar Extends Losses During Holiday Trading

"The US dollar continued its decline during the Good Friday holiday trading session, with the greenback struggling to maintain the 99.00 level. Is this the onset of a new prolonged weakening cycle, or are investors gradually retreating from US assets?

Greenback Struggles During Good Friday Session

The US dollar continued its decline during the Good Friday holiday session, struggling to maintain the 99.00 level. This raises the question: Are we witnessing the start of a prolonged bearish cycle for the greenback, or are investors simply turning away from US assets?

At 13:52 GMT on Friday, the US Dollar Index (DXY) — which measures the dollar’s strength against a basket of major currencies — slipped 0.04% to 99.34, down from its opening at 99.39, on the US ICE Futures exchange. Over the week, the DXY fell by 0.8%, contributing to a steep year-to-date loss of more than 8%.

Wall Street has been caught off guard by the dollar’s sharp drop, especially given the current macroeconomic conditions, which would typically support the US dollar as a safe-haven asset.

Multiple Factors Driving Dollar Down

A variety of factors may be contributing to the decline. The Federal Reserve is expected to resume interest rate cuts this summer, and investors may be diversifying away from US markets in favor of international opportunities. Additionally, rising inflation expectations and growing concerns over fiscal policy are also exerting downward pressure on the dollar.

Regardless of the causes, the greenback’s broad-based weakness is raising questions and concerns among economists and market analysts. Several major currency pairs reflect this trend: the USD/CAD has dropped 3.5% this year, the EUR/USD has gained 10%, and the GBP/USD is up more than 6%. Surprisingly, the Russian ruble has emerged as one of the strongest performing currencies globally.

US Treasury Market Sends Mixed Signals

It’s not just the dollar under pressure. The US Treasury market has also seen unusual volatility. Normally, during periods of market uncertainty, investors flock to Treasuries, pushing yields down. However, yields have remained elevated, sparking speculation that countries like Japan and China might be reducing their US bond holdings. The benchmark 10-year Treasury yield is currently around 4.4% — sparking speculation that countries like Japan and China might be reducing their holdings of US government bonds.

Is the Dollar’s Global Dominance Under Threat?

Looking ahead, questions are mounting about whether the dollar’s global dominance is under threat. According to Goldman Sachs Research, while the US dollar will likely remain the world’s primary reserve currency, it may continue to weaken.

“We have previously argued that the US’s exceptional return prospects are responsible for the dollar’s strong valuation,” said Michael Cahill, senior currency strategist at Goldman Sachs. “But if tariffs squeeze profit margins for US firms and reduce consumers’ real incomes, that could undermine this exceptionalism — and in turn, erode the foundation of dollar strength.”

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