Greenback Under Pressure: How Trump’s Fed Attacks Are Reshaping the Dollar’s Fate

The U.S. dollar has slipped to its lowest level in three years, a retreat amplified by President Donald Trump’s unrelenting assault on Federal Reserve independence. As markets grapple with geopolitical tensions and policy uncertainty, investors face a critical question: Is this a temporary dip or the start of a long-awaited dollar correction?

The Dollar’s Downturn: Data and Drivers

In the first quarter of 2025, the DXY index, which tracks the greenback against six major currencies, fell to 105.456—a 2.0% decline from late 2024. By Q3, the DXY stabilized at 106.599, but this remains near multiyear lows. Key currencies like the euro and yuan gained ground, while the yen and Mexican peso weakened further. The USD/CNY rate, for instance, rose to 7.26254 in Q3/25, reflecting a stronger dollar against China’s currency but still down from its 2022 peak of 7.37.

The dollar’s softness isn’t just about short-term jitters. Structural headwinds loom: the U.S. trade deficit remains stubbornly high (4.2% of GDP), and the Fed’s independence is now a political battleground.

Fed Independence Under Siege

Trump’s public denunciation of Fed Chair Jerome Powell—dubbing him “Mr. Too Late” and a “major loser”—has rattled markets. The president’s demands for immediate rate cuts clash with the Fed’s cautious approach to inflation and growth.

Powell has held firm, emphasizing the Fed’s dual mandate to balance price stability and employment. Yet markets are pricing in the risk of politicization:

• Stocks tumbled in April 2025 after Trump threatened to replace Powell, with the Dow plunging 1,050 points (2.7%) and Tesla’s shares falling 5%.
• The dollar’s value dropped to a three-year low against the euro and yuan, reflecting eroded confidence in U.S. policy consistency.

Legal scholars warn that any attempt to oust Powell could spark a broader crisis. “The Fed’s independence is a legal and economic bulwark,” says Chicago Fed President Austan Goolsbee. “Undermine it, and you risk stagflation—a mix of high inflation and weak growth.”

Market Reactions: A Perfect Storm?

The Fed’s policy dilemma is acute. Trump’s tariffs—meant to boost domestic industries—have backfired, creating inflationary pressures while slowing global trade.

• Emerging markets face dual blows: a stronger dollar raises import costs, while tighter U.S. monetary policy crimps capital flows. The Mexican peso, for example, fell to 21.4518 USD/MXN in Q3/25, a 2.4% drop from late 2024.
• Tech stocks, already hit by trade barriers, have lost $3.8 trillion in market value since Trump’s 2025 inauguration, with Nvidia and Apple leading the declines.

The Investment Playbook: Navigating Uncertainty

Investors must weigh near-term volatility against long-term trends:

1. Dollar exposure: While the greenback’s decline may continue, its reserve currency status and Fed rate hikes will limit its drop. Consider hedging USD exposure via gold or emerging-market bonds.
2. Equities: Avoid sectors tied to U.S. exports (e.g., industrials) and focus on inflation hedges like energy stocks or commodities.
3. Geopolitical plays: China’s yuan and Russian ruble—both gaining against the dollar—could offer opportunities, though political risks remain high.

Conclusion: A Crossroads for the Dollar

The U.S. dollar’s three-year low isn’t just a technical indicator—it’s a symptom of deeper instability. With Trump’s attacks on the Fed and trade policies fueling uncertainty, the greenback’s path is clouded.

• Short-term: The DXY may hover near 106-107 as the Fed resists cuts, but market volatility will persist.
• Long-term: Overvaluation (the dollar is two standard deviations above its 50-year average) and the trade deficit suggest a correction is inevitable.

Investors should prepare for a prolonged period of dollar weakness unless the Fed pivots decisively—or the White House relents. As Powell once said, “We serve very long terms, so we’re protected by the law.” But in 2025, even that protection seems fragile.

The writing is on the wall: the dollar’s era of dominance is wobbling. The question now is how far—and how fast—it will fall.