The U.S. dollar tumbled to its lowest level in three years on Monday, April 21, 2025, as global investors pulled back from American assets in response to deepening tensions between President Donald Trump and Federal Reserve Chair Jerome Powell. The ICE U.S. Dollar Index, which measures the greenback’s value against a basket of major currencies, dropped to 97.92—its weakest since March 2022—before settling at 98.24, down 1.1% for the day, according to FactSet data.
The sharp decline followed a series of public attacks by President Trump on Powell, including renewed threats to remove the Fed chair, and growing concerns about the independence of the U.S. central bank. The dollar’s slide coincided with a broader selloff in U.S. stocks and bonds, as investors sought safety in alternative assets.
Trump’s Rhetoric and Threats Unnerve Markets
President Trump intensified his criticism of Powell on Monday, calling him “Mr. Late” and “a loser” on Truth Social, and demanding immediate interest rate cuts to prevent an economic slowdown. These remarks followed statements from White House economic adviser Kevin Hassett that the administration was actively considering removing Powell before his term ends in May.
“The market is clearly signaling disapproval of the notion that the president might attempt to oust the Fed chair,” said Krishna Guha, vice chairman at Evercore ISI, on CNBC’s “Squawk Box.” “Questioning the independence of the Federal Reserve raises the stakes for them to cut rates. If you were to attempt to remove the Federal Reserve chairman, you would likely witness a harsh market reaction, with rising yields, a declining dollar, and falling equities”.
Investor Flight: Dollar, Stocks, and Bonds Hit
Sharp declines in U.S. equity markets mirrored the dollar’s weakness. The Dow Jones Industrial Average fell more than 1,000 points, or 2.6%, while the S&P 500 dropped 2.66% and the tech-heavy Nasdaq Composite slid 3%. All 11 sectors of the S&P 500 closed lower, with major companies such as Nvidia and Delta Air Lines suffering significant losses.
Bond markets were also hit, with the yield on the 10-year Treasury note rising to 4.4% as prices fell—an unusual combination of rising yields and a weakening dollar that signals deep investor unease. In derivatives markets, the cost of insuring investment-grade U.S. corporate bonds against default climbed to its highest level in over a week, further reflecting risk aversion.
Safe Havens Surge: Gold and Swiss Franc Rally
As confidence in U.S. assets waned, investors increasingly sought refuge in traditional safe havens. Gold prices soared to a new record above $3,400 an ounce, while the Swiss franc gained more than 1% against the dollar. The euro also advanced by 1.3% against the greenback, and the New Zealand dollar surpassed the $0.60 mark for the first time in over five months.
Tariffs and Policy Uncertainty Compound Dollar’s Decline
The Trump administration’s trade policies have exacerbated market turbulence. The introduction of sweeping reciprocal tariffs on April 2 triggered a wave of selling in U.S. assets, as investors braced for prolonged trade disputes and potential global retaliation. Trump’s assurances of progress in tariff negotiations failed to calm markets, with analysts warning that the lack of concrete trade agreements could prolong uncertainty for months.
“We are witnessing a president intent on upending Washington. Investors who disregarded Trump’s own declarations about increasing tariffs have not fared well. Similarly, it would be a mistake to overlook Trump’s statements and actions on these various matters,” said Michael Laperriere, head of U.S. policy at Piper Sandler, in a note to clients.
Fed Independence in the Spotlight
The escalating feud between the White House and the Federal Reserve has raised alarms about the central bank’s autonomy. Although the president cannot directly dismiss the Fed chair without cause, his repeated threats and public pressure have led to speculation that efforts to undermine the Fed’s independence could further destabilize markets.
“Powell does not directly answer to Trump, so (Trump) cannot actually dismiss him. The removal process follows specific protocols that are likely to be more stringent... but can the president manipulate the mechanisms to undermine the perceived independence of the Fed? Absolutely,” said Vishnu Varathan, head of macro research for Asia excluding Japan at Mizuho, in comments to Reuters.
Analysts from Macquarie noted that the “flight from the USD” was driven by “concerns regarding the Fed’s independence” and the absence of trade agreement announcements.
Inflation, Interest Rates, and Economic Outlook
President Trump has repeatedly argued that inflation is virtually nonexistent and has called for “preemptive” interest rate cuts to stimulate the economy. However, the Federal Reserve’s preferred inflation gauge remains above its 2% target, and Chair Powell has signaled caution, stating that the Fed is “positioned to wait for greater clarity before considering any changes to our policy stance”.
The Fed’s board of governors is scheduled to meet in early May to decide on its benchmark interest rate. According to the CME FedWatch tool, 88% of traders expect the Fed to hold rates steady, reflecting uncertainty about the economic outlook and the impact of trade and political tensions.
The Dollar’s Global Role and Recent Performance
The U.S. dollar is widely regarded as the world’s reserve currency, underpinning global trade and finance. Over the past decade, the U.S. economy's strong performance and relatively higher interest rates have attracted significant foreign capital, thereby boosting the dollar’s value. However, the recent combination of political instability, trade disputes, and threats to central bank independence has reversed this trend.
Since President Trump’s inauguration in January, the dollar has experienced a steady decline. The ICE U.S. Dollar Index is now down nearly 5% year-to-date, with the euro, yen, and franc all appreciating against the greenback.
Analyst Perspectives: Market Reaction and Risks
Market experts warn that further attempts to interfere with the Federal Reserve could unleash even greater volatility. “If you were to attempt to remove the Federal Reserve chairman, you would likely witness a harsh market reaction, with rising yields, a declining dollar, and falling equities,” said Krishna Guha of Evercore ISI.
Jonas Goltermann, a markets economist at Capital Economics, noted that “Trump’s criticism of Chair Powell this week serves as a reminder that trade policy isn’t the only area where the administration’s approach could impact the dollar and U.S. asset markets”.
Broader Economic Impact
The fallout from the dollar’s decline has spread to credit markets, with the cost of protecting investment-grade corporate bonds against default rising, and some companies delaying planned bond sales due to unfavorable market conditions. Only American Express proceeded with a bond offering on Monday, as two other firms pulled back.
Key Questions for Investors and Policymakers
The current turmoil raises several critical questions: Will President Trump move to dismiss Powell, and what legal or political obstacles would he face? How will the Federal Reserve respond to mounting political pressure? Can U.S. policymakers restore investor confidence amid ongoing trade and policy uncertainty?
With the Fed’s next policy meeting looming and global markets on edge, the direction of the dollar and U.S. financial markets remains highly uncertain. Many analysts caution that the situation could deteriorate further if political tensions escalate or if trade negotiations stall.
A Pivotal Moment for U.S. Economic Leadership
The U.S. dollar’s plunge to a three-year low underscores the fragility of investor confidence in the face of political and policy uncertainty. As President Trump continues to clash with the Federal Reserve and pursue aggressive trade measures, markets are signaling deep concern about the future direction of U.S. economic policy and the independence of key institutions.
The coming weeks will be critical for both policymakers and investors as they navigate heightened volatility and seek to restore stability to U.S. and global markets.