The US dollar has recorded its sharpest one-day fall on record, as investors flee American assets in the wake of President Donald Trump’s sweeping new trade tariffs, sparking fears of a broader confidence crisis in US policy and markets.
Bloomberg’s gauge of the dollar fell by as much as 2.1% on Thursday night, eclipsing declines in equities, commodities, and even Treasury yields. Deutsche Bank, which issued a stark warning to clients, described the developments as “the biggest trade policy shift from the US in a century” and warned of a potential “broader confidence crisis” surrounding the greenback.
“There is a very large disconnect between the recent communication of an in-depth policy assessment and the actual policy outcome,” Deutsche Bank wrote. “We worry this risks lowering the policy credibility of the administration.”
The collapse in the dollar runs counter to conventional expectations. Investors typically anticipate that tariffs—especially those imposed by the US—will boost the dollar by weakening other economies, raising inflation expectations, and driving up interest rates. But instead, the dollar’s rapid decline points to a more serious issue: a loss of global confidence in the US economic agenda.
Retreat from US risk assets
The unexpected plunge has accompanied a broader exodus from US assets. Wall Street’s major indices tumbled, with the S&P 500 dropping 4.84%, the Dow Jones falling nearly 1,680 points, and the Nasdaq down 5.97%, its worst day since March 2020. An index of the “Magnificent Seven” tech stocks—Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla—dropped 6.9% and is now down 24% since late December.
Apple, heavily exposed to Asian supply chains now facing tariffs of 24–54%, fell 9.2%.
Other key indicators confirmed the market’s unease: the VIX volatility index surged 32%, oil dropped 6.7%, and the 10-year US Treasury yield fell 3.2% to 4.06%.
“Given the dramatic nature of the moves, we are becoming increasingly concerned that the dollar is at risk of a broader confidence crisis,” said Deutsche Bank’s George Saravelos, warning that investors may be starting to unwind long-standing US asset positions.
Capital flight risk and global ripple effects
The dollar’s safe-haven status is also under pressure. Deutsche Bank noted that the extreme overweight position in US assets by developed economies—built up over the past decade—could unwind if confidence erodes further. The US runs a substantial current account deficit, meaning continued capital inflows are essential to support the dollar.
A simultaneous fall in the dollar, US equities, and a rise in the term premium on US Treasuries would, according to Saravelos, be the clearest signal that disinvestment is underway. Although the rise in term premia has not yet occurred, the bank cautioned that if it does, it would be “a very negative signal.”
The implications for Europe are also significant. The euro rose more than 2% on Thursday, its largest daily gain since 2015, prompting concerns that a stronger euro could export deflation to the eurozone. Deutsche Bank now sees a 90% chance the European Central Bank will cut rates in April, up from 70% just one day prior.
“The last thing the ECB wants is an externally imposed disinflationary shock from a loss in dollar confidence and a sharp appreciation in the euro on top of tariffs,” Saravelos wrote.
Jobs data in focus
With the dollar sliding and equity markets on edge, investors are now bracing for Friday’s release of US jobs data. A soft result could exacerbate recession fears and further weaken investor sentiment, creating a volatile mix of slowing growth, protectionist policy, and deteriorating confidence in the US dollar.
Deutsche Bank remains bearish on the dollar, noting that while a retaliatory move higher in the Chinese yuan (USD/CNY) could challenge this view, the overall trajectory now depends on how China, Europe, and other key economies respond to the US’s tariff offensive.
