The US Dollar (USD) has fallen to a three-year low, influenced by ongoing tariff tensions with China. China has increased tariffs on US goods to 125%, leading to increased demand for safe-haven currencies such as the Swiss Franc (CHF) and Japanese Yen (JPY).
This week has seen a protest against US policies, with investors shifting away from USD assets. The Dollar Index (DXY) has reached a target of 99, but further declines of 5-10% may occur if a resolution to the tariff situation is not found promptly.
Tariff Tensions and Investor Sentiment
Given the sustained descent of the Dollar Index and its approach to 99, which had already been flagged as a key level, the absence of any meaningful resolution in the tariff dispute has reinforced an environment where further depreciation seems plausible. The imposition of retaliatory tariffs by China, which now peak at 125%, has not only weakened the demand for US-manufactured goods abroad but has also contributed to a rebalancing of investor sentiment. What’s evident is this—capital is now seeking perceived refuge in alternatives that remain less exposed to trade risks.
Both the Swiss Franc and the Yen have benefited, with steady inflows driving these currencies upward. This is not coincidental; it reflects the wider strategy among risk-sensitive participants to avoid assets that may be swept up in economic fallout from continued geopolitical sparring. The turnover patterns we’re seeing in the derivatives markets lend further weight to this view, with options pricing beginning to point more clearly at near-term weakness in USD pairs.
With no immediate signs of a breakthrough in the standoff, traders should continue to assess USD risk with a biased lens. Hedging Dollar exposure, even at these weakened levels, still presents value, particularly through put spreads or short futures strategies. Timing becomes a factor here—not so much predicting resolution but understanding when the absence of one keeps dragging momentum further.
Market Volatility and Strategic Positioning
Yuan stability, despite these tensions, has also led others to reconsider previous assumptions about capital flight. There’s a perception shift happening. From where we sit, a 5–10% slide in the USD from current levels cannot be dismissed. It’s not merely projection; it’s alignment with how pricing mechanisms are responding to trade-linked variables.
The cautious action seen across the credit and equity-linked contracts suggests we’re far from reaching any kind of support floor just yet. Volatility in currency pairs that include the Greenback is trending upward, particularly in those with existing liquidity depth, which may offer opportunities for tactical plays around mean reversions or breakout strategies, depending on the horizon.
We’re watching positioning data closely—especially CFTC reports—as more funds are now holding net shorts on USD compared to earlier in the quarter. While not definitive, the consistent widening of those shorts indicates continuation bias rather than a technical rebound.
Ultimately, what we’ve got is a sentiment-driven move that has now crossed the line into new territory. The changing stance in major leveraged portfolios only emphasises that. It’s no longer about speculation on trade headlines; it’s about recalibrating value expectations over the coming cycles. Prepare for that.
