The U.S. dollar sank sharply on Tuesday after President Donald Trump publicly dismissed concerns about the currency’s rapid decline, comments that traders interpreted as tacit approval of a weaker greenback at a moment of heightened sensitivity in global foreign exchange markets.

“I think it’s great,” Trump told reporters in Iowa when asked whether the dollar had fallen too far. “The dollar’s doing great.”

Those remarks accelerated an already steep sell-off. The benchmark ICE U.S. Dollar Index, which tracks the currency against a basket of major peers including the euro, yen, pound, Canadian dollar and Swiss franc, extended losses to as much as 1.5% on the day. That put the dollar on track for its worst single-day decline since April, and capped what was already shaping up to be its worst three-day stretch since Trump’s April 2025 “Liberation Day” tariff announcement roiled global markets.

By late afternoon in New York, the dollar was trading at its weakest level since early 2022, underscoring how far sentiment has shifted since the currency’s post-pandemic peak.

The sell-off reflects more than a single offhand remark. Trump’s comments reinforced a perception that the White House is comfortable with — or even welcomes — a softer dollar as part of its broader trade and industrial strategy. Speaking in Iowa, Trump said he wanted the currency to “just seek its own level,” adding that he could move it “up or down like a yo-yo” if he wanted to.

For currency traders, that signaled a reduced willingness by the administration to defend dollar strength rhetorically, let alone through policy coordination.

That matters because the dollar has already been under pressure since Trump rolled out sweeping global tariffs last year. While U.S. equity markets recovered from the initial shock, the currency never fully rebounded. In 2025, the dollar index fell 9%, its worst annual performance since 2017, reflecting a combination of trade uncertainty, widening fiscal deficits, and growing expectations that interest rate differentials may narrow in the years ahead.

For households and businesses, the implications of a weaker dollar are tangible. A falling currency makes overseas travel more expensive for Americans and can push up the cost of imports, adding to inflationary pressures at a time when price stability remains politically sensitive. Morgan Stanley analysts noted previously that a softer dollar can also make U.S. assets less attractive to foreign investors, potentially weighing on capital inflows.

Analysts Link Weakening Dollar to Trump’s Export Push

There is, however, a flip side. A cheaper dollar improves the competitiveness of American exports by making them more affordable in foreign markets, a dynamic Trump has long favored. In Iowa, he revisited familiar grievances about currency practices abroad, saying he had previously “fought like hell” with China and Japan over what he described as efforts to weaken their currencies.

“It’s hard to compete when they devalue,” he said, while adding that those countries “always want our dollars.”

Recent moves in Asia have amplified the dollar’s slide. Abrupt shifts in the Japanese yen following Prime Minister Sanae Takaichi’s call for a snap election injected fresh volatility into currency markets, further pressuring the greenback. At the same time, China’s yuan strengthened sharply, touching a 32-month high against the dollar as Beijing guided its currency higher amid intensifying global selling of the U.S. currency.

On Wednesday, the yuan rose as far as 6.9449 per dollar, its strongest level since May 2023, before easing slightly. The People’s Bank of China set the daily midpoint at 6.9755, its strongest fixing in more than a year and a move that was more than 100 pips stronger than the previous session. Traders said the guidance signaled that Beijing is allowing measured appreciation while discouraging speculative, one-way bets on rapid yuan gains.

Analysts at China Construction Bank said markets are increasingly convinced that the dollar will continue to weaken into 2026, with many expecting new cyclical lows.

“Given that the greenback is unlikely to regain strength in 2026, the renminbi should face much less external pressure going forward,” the bank wrote, adding that China’s relative equity market strength could attract foreign inflows and further support the currency.

The steady decline of the U.S. dollar is increasingly being interpreted as part of a broader economic strategy under President Donald Trump to re-engineer America’s export competitiveness at a time when global trade dynamics are tilting sharply in Asia’s favor.

For much of the past decade, the strength of the dollar has been a double-edged sword for the United States. While it reinforced the currency’s status as the world’s primary reserve asset and helped tame imported inflation, it also made American goods expensive in global markets. That imbalance became more pronounced as China, through tight management of the yuan, ensured its exports remained attractively priced across Africa, Latin America, and parts of Europe.

Analysts now argue that the dollar’s recent weakness is correcting that imbalance. In trade-weighted terms, the greenback has lost ground against several major currencies, narrowing the price gap between U.S. and Chinese exports.

For manufacturers of machinery, agricultural products, industrial chemicals, and consumer goods, this shift matters. A weaker dollar lowers the foreign-currency price of U.S. exports, making them more competitive against Chinese alternatives that have long dominated price-sensitive markets.

Economists following to the administration’s thinking believe the logic is straightforward. For years, American exporters have complained that they are being priced out of global markets, not because of quality or scale, but because currency differentials favor their competitors, particularly China. The yuan’s relative weakness meant Chinese goods often arrived cheaper, even when production costs were comparable. By allowing the dollar to soften, the U.S. effectively reduces that disadvantage without direct subsidies or new trade barriers.

This view aligns with Trump’s long-standing trade philosophy. Since his first term, he has argued that an overvalued dollar hurts American workers and manufacturers. His public statements have repeatedly tied currency strength to factory closures, trade deficits, and job losses in industrial states.

While the administration rarely frames exchange rate movements as explicit policy targets, analysts have noted that fiscal expansion, tolerance for looser financial conditions, and a more confrontational stance toward traditional allies have all contributed to downward pressure on the dollar.

The implications go beyond exports alone. A weaker dollar also improves the earnings outlook for U.S. multinationals, which generate a large share of their revenues overseas. When foreign earnings are converted back into dollars, companies benefit mechanically from currency depreciation. This has already begun to show up in corporate guidance, with several exporters pointing to foreign exchange as a tailwind for revenues.

There are, however, trade-offs. Dollar weakness can feed imported inflation, particularly for energy, electronics, and consumer goods. That risk is closely watched by the Federal Reserve, especially as inflation remains a politically sensitive issue for households. Still, some analysts believe that the inflationary impact is being cushioned by slowing global demand and increased domestic production, particularly in energy and agriculture.

In contrast, China’s position is becoming more complex. While a relatively cheap yuan continues to support Chinese exports, it also raises concerns about capital outflows and financial stability. Beijing has had to strike a careful balance, preventing sharp depreciation that could unsettle markets while maintaining export competitiveness.

The narrowing currency gap with the U.S. means China’s exporters may no longer enjoy the same overwhelming price advantage in key markets.

For global trade, the shift signals a subtle reordering. If the dollar remains weaker for an extended period, U.S. exporters could regain market share in regions where Chinese dominance was built largely on price rather than technological superiority. That would align with Trump’s broader goal of shrinking the trade deficit and reasserting American manufacturing strength without relying solely on tariffs.

In this context, the dollar’s decline is less a warning sign and more a policy signal. Analysts see it as an indirect but powerful tool in Washington’s economic playbook, one aimed at restoring balance in a global trading system that many in the administration believe has long tilted against the United States.