Why gold and the Swiss franc suddenly look more attractive than the dollar

It’s been a dramatic week in foreign exchange markets as a six-word comment on Tuesday by President Donald Trump intensified a selloff for the U.S. dollar, sending it to its lowest level in four years.

On Wednesday, Treasury Secretary Scott Bessent sought to do some damage control. It doesn’t appear to be working yet.

Understanding what’s happening with the dollar now traces back to early 2025, when the greenback hit a multi-year high relative to other currencies just days before Trump’s return to the White House. The dollar has tumbled 10% since, a victim of the “Sell America” trade that first came into vogue after Trump announced sweeping tariff plans last April.

The dollar was already under pressure this month as Trump’s rhetoric about acquiring Greenland and his speech at the World Economic Forum in Davos, Switzerland reignited that “Sell America” trade. Last week brought another blow to the greenback when Reuters reported that the New York Federal Reserve had conducted rate checks on the dollar/yen pair, putting traders on alert of a potential coordinated currency intervention by U.S. and ‌Japanese authorities.

And yet, it was a brief comment by Trump on Tuesday that saw the dollar suffer its worst one-day decline since April on Wednesday as currency traders ditched the dollar in favor of safe-haven assets like gold and the Swiss franc. 

When asked by a reporter if the dollar had declined too much, Trump brushed off any concerns, saying, “No, I think it’s great.”

BESSENT SPARKS BRIEF RALLY

Not everyone agrees with that sentiment, to put things mildly. 

The editorial board of The Wall Street Journal published an op-ed on Wednesday, noting that there are good reasons why a strong dollar policy is favored in Washington and that while Trump likes to be an economic iconoclast, “he breaks this particular tradition at his—and America’s—peril.”

Meanwhile, in an interview with CNBC on Wednesday, Bessent sought to reassure traders that the U.S. still has a strong dollar policy and said the U.S. is “absolutely not” intervening in the currency market right now.

Bessent’s comments did spark a brief rally for the greenback that faded by early Thursday—an indication that the Trump administration may need to do more to reassure investors.

DOLLAR AND THE ECONOMY

On Wednesday, Federal Reserve policymakers left a benchmark interest rate unchanged, at a range of 3.50% to 3.75%. But Fed Chair Jerome Powell declined to weigh in on the currency’s recent decline, telling a reporter, “We don’t comment about the dollar.”

That said, a weaker dollar undeniably has ramifications for the broader economy. 

A weaker dollar can boost U.S. exports by making American goods cheaper for foreign buyers, but it hurts consumers and businesses as the cost of imports becomes more expensive and risks inflation. Meanwhile, Americans pay more while traveling abroad, while it’s cheaper for foreign tourists to visit the U.S.

DOLLAR BEAR MARKET

The dollar is still strong by historic standards—and particularly compared to a roughly 12-year period between 2003 and 2015—but some investors caution that the worst of its recent declines aren’t over. 

In fact, the term “bear market” is increasingly being bandied about. A bear market is defined as a decline of at least 20% from a recent peak. 

A longer-term dollar bear market is likely and could be worsened by an investing dynamic in recent years, as Cole Smead, CEO and portfolio manager at Smead Capital Management, told CNBC’s “Squawk Box Europe” on Wednesday. That’s because a huge amount of money has poured into the U.S. over the past decade, and traders will eventually seek out better returns elsewhere. 

“We’re going to see the dollar struggle because of that capital account movement abroad,” Smead said.

More immediately, international traders once again have reason to hedge their bets on the U.S. given Trump’s remarks.

Stephen Jen, chief executive of London-based asset manager Eurizon SLJ Capital, told The Wall Street Journal that he expects a further 20% decline for the currency. “The world is not ready.”