The U.S. dollar is coming under fire again in the first few turbulent weeks of 2026 as a growing range of factors -- including Washington's desire for a weaker currency -- prompts a rethink of investors' optimistic assumptions for a period of stability for the greenback.
The dollar on Monday was headed for its biggest three-day slide against a basket of major currencies since last April when U.S. President Donald Trump's "Liberation Day" tariffs unleashed a steep selloff in U.S. assets.
In his first year in office, President Trump's erratic approach to trade and international diplomacy, his attacks on the Federal Reserve that undermine its independence, and huge increases in public spending pushed the dollar down more than 9%, its worst yearly showing since 2017.
So far this year, the dollar was again underperforming other major currencies including the euro, sterling and Swiss franc.
"There are a number of factors coming together," said Seema Shah, chief global strategist at Principal Asset Management, which manages just over $600 billion worth of assets. "I don't think this is a 'Sell America' trade, but the fundamentals are coming together, and faster than expected."
Just this month, Trump has threatened to take control of Greenland, slap more tariffs on European allies over the matter, moved to criminally indict Fed Chair Jerome Powell, and overseen an operation to seize the president of Venezuela. On Saturday, he threatened Canada with an effective trade embargo. While he has backed down on his threats over Greenland and European tariffs, and markets have shaken off the strike on Venezuela, the backdrop is tense.
Market measures of volatility are still running hot and bond market sentiment is fragile, not least because of an aggressive selloff in Japanese government debt that could spill over into Treasuries, while gold's relentless scaling of new records is a sign investors are seeking alternative safe-havens.
Trump's domestic policies, including an aggressive crackdown on illegal immigration that has killed two U.S. citizens this month and sparked protests, could prompt another government shutdown this month.
"That threat of a shutdown adds to the tailwind that has been depressing the dollar, adds one more reason for anyone who may be reconsidering investing in U.S. or hedging dollar exposures," said Mark Spindel, chief investment officer of Potomac River Capital in Washington.
What's more, the Fed is still expected to cut interest rates at least twice this year, while other major central banks are pausing or could even hike rates. This alone makes the dollar less appealing to investors, who could opt to put their money somewhere where lending rates are rising.
Powell, who has resisted pressure from Trump for faster rate cuts, steps down in May. Online betting markets now attach a 50% chance to BlackRock's bond chief Rick Rieder, an advocate of lower rates like the president, being the likely successor. That was up from less than 10% a week ago, adding to dollar weakness.
