US dollar drops to three-year low
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The news: The US dollar dropped to a three-year low on Thursday, as concerns about the US economy fuelled by tariff uncertainty weaken the currency.
The numbers: The dollar fell 0.9% against a basket of trading partners including the pound and the euro, pushing it below the previous low it reached after Trump’s ‘liberation day’ trade tariffs were unrolled in early April. The dollar is now at its weakest level since March 2022, and is down over 8% in 2025 so far.
The context: The currency fell after Trump said he would send letters to trading partners outlining new tariffs rates, as the end of the 90-day pause on reciprocal tariffs approaches.
Rising tensions between the US, Iran and Israel, after Trump ordered US personnel to leave the region on Wednesday, as well as an incoming trade agreement between the US and China, are being processed by investors.
The news that the Pentagon is reviewing the Aukus agreement may also be impacting Thursday’s dollar moves, with Deutsche Bank analyst, George Saravelos, telling the FT that the US “re-evaluating its participation in the Aukus defence pact is highly relevant for the dollar, in our view…A weaker geopolitical alignment between the US and its allies undermines US inflows.”
Weak US inflation data published on Wednesday may also be dragging on the dollar, opening the door to potential interest rate cuts by the Federal Reserve.
