By Chelsey Dulaney and Alistair MacDonald
April 16, 2025
The Wall Street Journal
The unexpected weakening of the U.S. dollar is suddenly becoming the rest of the world’s problem.
For foreign sellers of all manner of goods, including cars, cognac and Scottish tweed, the dollar’s steep slide is a double whammy, compounding losses caused by President Trump’s import levies. For central banks around the world, the rapid strengthening of their own currencies heaps pressure to cut interest rates more aggressively.
The U.S. currency resumed its rapid weakening Wednesday, hitting fresh lows against the euro, the Japanese yen and the Swiss franc. The dollar decline has been historic, with the ICE U.S. Dollar Index, a measure of the greenback against a basket of currencies, slipping 8% this year, the worst start to a year in the index’s four-decade trading history.
Because of its role as the primary currency used for global trade and finance, swings in the dollar have significant global consequences.
“For exporters, you’re not getting the currency eroding some of the tariff impact for the end U.S. consumer,” said Derek Halpenny, the London-based head of global markets research for the Japanese bank MUFG. “It has a bigger negative impact for sure.”
A weak dollar makes the profits that foreign companies earn from their U.S. divisions worth less when translated back into euros or yen. It also makes the goods they produce more expensive for American consumers.
Japan’s Toyota is expected to face an earnings hit from the yen’s climb to 143 per $1 from 157 at the start of the year. For years, the weakness of the yen has been boosting profitability at Toyota and other large Japanese exporters.
In Europe, the currency swings are likely to dent results at luxury goods houses such as Prada and LVMH, and beverage sellers such as Campari and Pernod Ricard, according to UBS.
Deutsche Bank cut its earnings forecasts for companies in the Stoxx Europe 600 index to 4% from 6%, citing weakening demand and the strength of the euro. The bank warned it could shave another percentage point of its growth forecast if the euro stays at its current level.
The decline in the dollar has come as a surprise to many. Economic textbooks teach that foreign currencies tend to weaken when economies are hit with tariffs, helping to make goods cheaper to offset the cost of the levies.
Instead, investors have reacted to Trump’s back-and-forth trade policies by dumping U.S. assets, unwinding huge bets they made in recent years on the idea that the U.S. would economically outshine the rest of the world. As investors sell U.S. dollar assets, they recycle them into home currencies, pushing up their value.