US Dollar Weakens Amid Trade Tensions and Rising Federal Debt, Impacting Crypto and Forex Volatility

The US dollar has experienced significant weakness due to escalating trade tensions, notably under President Trump’s new tariffs, and mounting concerns over the rising US federal debt, now at $36.2 trillion. Over recent weeks, the dollar index plunged to a six-week low, with the euro and yen strengthening against the dollar. This divergence from historical patterns—where the dollar typically moves in tandem with Treasury yields—has been intensified by downgraded US credit ratings, policy uncertainty, and weak manufacturing data. Financial markets are further unnerved as the Senate considers a new spending plan that could increase debt by $3.8 trillion, and planned tariff hikes on steel and aluminum add to the uncertainty. This evolving ’sell America’ sentiment has resulted in sharp declines in US stocks and Treasury bonds, prompting investors to hedge against dollar risk by increasing allocations to gold and traditional safe-haven currencies. Top strategists at Goldman Sachs and UBS warn of further potential dollar weakness and recommend short positions on the USD. For crypto traders, these developments are crucial, as increased volatility in cross-border capital flows and forex markets is likely to spill over into crypto assets, presenting both risks and opportunities.