Dollar Plummets 9% in Trump's First 100 Days, Investors Flee to Gold

In the first 100 days of Donald Trump's presidency, the U.S. dollar experienced its worst performance in over half a century. From January 20th to April 25th, the dollar index plummeted by nearly 9%, marking the largest decline in a president's first 100 days since 1973, when Richard Nixon began his second term. Historically, the dollar has typically strengthened during a new president's first 100 days, with an average return rate of approximately 0.9% from 1973 to 2021. However, Trump's erratic trade policies and threats to the Federal Reserve's independence have led investors to sell off dollar assets en masse, exacerbating the dollar's decline and boosting the value of gold and other non-U.S. currencies.

Trump's re-election has seen the euro, Swiss franc, and Japanese yen all rise by more than 8% against the dollar. This situation bears a striking resemblance to the "Nixon Shock" of 1973, when the U.S. abandoned the gold standard, leading to a global sell-off of the dollar and a rush to buy gold. The resulting turmoil forced Western and Japanese foreign exchange markets to close for 17 days. The collapse of the Bretton Woods system marked the beginning of a new era of floating exchange rates and the de-monetization of gold.

The current global trend of selling dollar assets and buying gold mirrors the events of 1973. The dollar's status as the world's reserve currency is built on trust in the U.S. system, low trade barriers, and predictable foreign policy. However, these foundations have shown signs of weakening, leading to a structural shift in global asset allocation that is unfavorable to the dollar. Trump's comments about Federal Reserve Chairman Jerome Powell, particularly his threat to fire Powell, have added to investor concerns about the Fed's independence, despite Trump's recent softening of his stance.

UBS Group has downgraded its dollar outlook twice in less than two months, citing the lack of progress in U.S.-China trade talks. Deutsche Bank has also warned of a structural decline in the dollar over the next few years, which could see the dollar fall to its weakest level against the euro in over a decade. The current environment of uncertainty and volatility has led hedge funds and asset managers to take significant short positions in the dollar, betting on its continued depreciation.