A Critical Moment for a Weakening Dollar Under the Trump Administration

■ Policy uncertainty in the Trump administration is putting pressure on the dollar, but the US Treasury Secretary continues to champion a "strong dollar" policy.  

■ The US Dollar Index (DXY), while focusing on the low point reached in February 2018 during Trump's first term, is facing a critical test of its weakening. 
 
2018, considered the midterm election year of Trump's first term, is seen as a year of deepening chaos and division. President Trump strengthened his hardline stance on foreign trade and criticized the Federal Reserve (FRB) on monetary policy, thus restraining the dollar's strength. Then-Treasury Secretary Mnuchin also tolerated the dollar's weakness. The partial federal government shutdown that began at the beginning of the year, although lasting only three days due to the passage of a temporary budget, accelerated the dollar's decline due to concerns about "the dysfunction of American democracy." At the same time, the Bank of Japan began exploring the possibility of exiting its easing policy, and the European Central Bank was also seen as pushing forward with policy normalization, leading to a strengthening of the yen and the euro. Despite the support of a robust US economy, the dollar rose to just over 113 yen against the yen, but fell back to the latter half of 104 yen by March. 

 
Subsequently, the Federal Reserve continued to raise interest rates every three months, while the Bank of Japan maintained an accommodative stance. Influenced by the widening interest rate differential between Japan and the US, the USD/JPY pair stabilized and rebounded in the latter half of the 104-yen level, reaching a high of 114 yen in October. The US midterm elections on November 6th resulted in the Senate and House of Representatives being controlled by different parties, forming a so-called "divided Congress," with the opposition Democrats gaining a majority in the House. The growing political divide over immigration and border issues led to another partial shutdown of the federal government from December 22nd until January 25th of the following year. Amidst lingering concerns about the stagnation of US domestic politics, the global economy began to slow, and the Federal Reserve hinted at a pause in interest rate hikes at its December 2018 meeting, pushing the USD/JPY pair back to the latter half of the 109-yen level, marking the end of the year's trading. 

 
Entering 2025, with the start of Trump's second term, the trade war, triggered by US tariffs, led to increased costs and was seen as potentially triggering a global recession and disrupting financial markets. At the start of 2026, amid a triple whammy of stock, bond, and currency sell-offs in the US and a sharp drop in Japanese government bonds, market confidence in the US dollar was once again shaken by concerns surrounding new US tariffs and the independence of the Federal Reserve. The US Dollar Index (DXY) plummeted to around 95, hitting a new low since February 2022. Despite the continued policy uncertainty of the Trump administration weighing on the dollar, US Treasury Secretary Bessent denied any currency intervention and emphasized a continued commitment to a strong dollar policy. Looking ahead, while attention is focused on the low of 88.253 reached in February 2018 during Trump's first term, the US Dollar Index will face a crucial test of its weakening as the US midterm elections approach on November 3rd.