Dollar Hits Three-Year Low Amid Trade Turmoil and Rate Cut Bets

Daily dollar decline raises global FX volatility as Federal Reserve policy shifts and Trump’s trade moves trigger economic ripples worldwide.

The dollar has plunged to its lowest level in three years, igniting global currency swings and prompting economic uncertainty across markets, as today’s focus turns sharply to the U.S. dollar’s accelerating fall. With the greenback down nearly 10% against a basket of major currencies so far in 2025, investors are bracing for further Federal Reserve rate cuts and reevaluating exposure to U.S. assets amid shifting trade dynamics.

According to Reuters (June 12), the rapid depreciation of the dollar is already driving unanticipated currency gains elsewhere, with major FX movements now beginning to influence inflation, monetary policy, and capital flows in regions from Scandinavia to Asia.

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1. Crown Currencies Surge Despite Rate Cut Signals

Scandinavia’s currencies are enjoying historic gains. The Swedish krona has soared 14%, its best year-to-date performance against the dollar in at least five decades. Norway’s krone follows closely with a 12% rise—its strongest since 2008.

Notably, these gains come despite Sweden’s upcoming rate cuts and falling inflation. This suggests the surge is less about economic strength and more about dollar weakness. Against the euro, the krona is up just 4%, and the krone by only 1.8%.

Even falling oil prices, which traditionally weigh on Norway’s currency, haven’t stopped the krone’s ascent this time—an indication of the dollar’s outsized influence.

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2. Safe Havens Face Deflationary Risks

The euro, Swiss franc, and Japanese yen have each gained roughly 10% against the dollar this year. While these are often viewed as safe-haven currencies, the recent appreciation has triggered economic headaches.

Swiss inflation turned negative in May for the first time in over four years, and pressure is mounting on the Swiss National Bank to cut rates back below zero. The European Central Bank is also concerned, with the euro touching $1.1572—its highest level since 2021. Analysts warn that if it races toward $1.20 too quickly, deflation risks could rise across the eurozone.

Japan’s yen, though still 30% lower than its 2020 peak, has clawed back significantly. But the rebound is complicated by Japan’s need to reassure Washington in ongoing trade talks that it isn’t manipulating its currency.

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3. Factory Asia Pulls Capital Back

Asian economies are seeing a reverse flow of capital that had long been parked in U.S. Treasuries. President Donald Trump’s April 2 “Liberation Day” declaration—seen by many as a major turning point—sparked capital repatriation to Asia, with immediate effects.

Taiwan’s dollar rose 10% in just two days in May and is up 12% on the year. South Korea’s won has climbed 10%, and currencies like the Singapore dollar, Malaysian ringgit, and Thai baht are up around 6%.

China’s offshore yuan has appreciated only 2%, restrained by PBOC intervention. Yet its underperformance has not escaped notice in Washington, even though the U.S. Treasury has refrained from labeling China a currency manipulator—at least for now.

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4. Argentina Bucks the Trend

Amid global dollar softness, Argentina’s peso has gone the other way—down 15% this year, making it one of 2025’s weakest currencies.

This divergence is largely due to internal reforms. Argentina adopted a new FX regime in April, letting the peso float within a widening band. While some feared a chaotic crash, the transition has been relatively smooth. A recent $20 billion IMF loan is also helping stabilize sentiment.

In contrast, Mexico’s peso has rebounded strongly after a rocky start to the year due to U.S. trade tensions. Now near its strongest since last August, the peso could gain further—though it remains sensitive to U.S. economic performance.

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5. Sterling’s Rally Faces Limitations

The British pound has rallied nearly 9% this year, reaching a three-year high against the dollar. However, signs of economic softening and rising expectations of Bank of England rate cuts have capped further gains.

Still, global investors are snapping up UK companies at speed—$10 billion in bids were announced just this Monday. Yet, with persistent fiscal concerns and slowing growth, analysts expect the pound to underperform other major currencies, except the dollar.

“Sterling is less appealing than others, and the macro risks are elevated,” said Lloyds strategist Nick Kennedy.

As the U.S. dollar continues its steep descent—driven by domestic policy shifts and global uncertainty—central banks and investors around the world are adjusting rapidly. From Nordic economies to Asian exporters, and from Swiss deflation to Argentine reform, the global financial system is bracing for a new FX reality shaped by the dollar’s fall from dominance.