The US dollar has been in a continuous decline. On Monday, the US Dollar Index accelerated its drop, falling over 1% intraday and breaking through two critical levels of 99 and 98, marking its lowest point since March 2022.

Regarding the recent dollar depreciation, the market generally believes that US government policies are undermining the dollar's international standing, exacerbating expectations of further devaluation. Meanwhile, within the Trump administration, there is a view that a strong dollar is a burden on the US, distorting currency markets and imposing undue pressure on American businesses and workers.

Some analysts further point out that whether the status of dollar-denominated assets weakens or collapses will be a key determinant of Trump's success or failure.

China Holds Steady, Japan Sends Signals: Does the Dollar Still Have Room to Fall?

Beyond the impact of US tariff policies, the dollar faces multiple other pressures.

The People's Bank of China's announcement showed that the Loan Prime Rate (LPR) remained unchanged for the sixth consecutive month in April, reflecting confidence in economic growth momentum, which adds pressure on the dollar.

According to media reports, Japanese Prime Minister Shigeru Ishiba recently stated that he hopes to make the ongoing US-Japan tariff negotiations a "model for US negotiations with other countries." He emphasized that "a zero-sum outcome will not set an example for other nations," hinting at a mutually beneficial agreement.

This subtle shift in rhetoric, combined with the yen's status as a safe-haven currency, could further boost the yen and indirectly weigh on the dollar.

At the same time, goldman sachs recently warned that negative trends in US governance and institutions are eroding the long-held "privilege" of US assets, dragging down returns on US assets and the dollar. Unless reversed, this situation may persist in the future.

Goldman Sachs, previously optimistic about the dollar, now predicts that over the next 12 months, the dollar could fall to 135 yen per dollar, equivalent to a further 6% depreciation from current levels.

Market vs. Trump Administration: Divergent Interpretations of the Dollar's Decline

Market interpretations of the dollar's decline sharply contrast with the Trump administration's stance.

According to reports, analysts and investors generally believe that the US shift in attitude toward allies and protectionist trade policies are shaking the dollar's reserve currency status.

Wall Street fears that the Trump administration's policies are accelerating the dollar's decline, potentially leading to turmoil in global financial markets. Gregory Peters, co-chief investment officer of PGIM Fixed Income, stated: "The U.S. has benefited from reserve currency status for 100 years. It's taken less than 100 days to unwind it,"

George Saravelos, global head of FX research at deutsche bank, wrote in a report last Friday: "Despite President Trump's reversal on tariffs, the damage to the USD has been done, the market is reassessing the structural attractiveness of the dollar as the world's global reserve currency and is undergoing a process of rapid de-dollarization."

In stark contrast to market concerns, many in the Trump administration believe a strong dollar is a burden on the US.

Whether intentional or not, nearly every action taken by the Trump administration in its first three months has dealt a blow to the dollar's support levels. Last week, the US Dollar Index fell 2.8%, marking its seventh-worst weekly performance in 30 years, with a cumulative decline of 8.2% so far this year.

What's Next for the Dollar?

The fundamental reason for the divergence between the market and the Trump administration's views on the dollar lies in their different perspectives.

From the market's standpoint, the dollar, typically a safe-haven asset, has weakened anomalously amid financial market volatility, indicating a shake-up in its dominant position- a sign of disorder and chaos.

However, some analysts argue that for the Trump administration, "chaos itself" is a strategy. Trump sees Federal Reserve Chair Jerome Powell as an obstacle, and under this framework, Powell faces either forced interest rate cuts or the risk of being fired. The resulting market volatility is not collateral damage but a means to accelerate the shift of capital from "virtual to real."

This means that whether dollar-denominated assets weaken or collapse will be a key determinant of Trump's success or failure.

Looking ahead, opinions on the dollar's prospects are divided.

Mark Sobel, US chairman of the Official Monetary and financial institutions Forum (OMFIF) and a former senior Treasury official, believes while the dollar's dominance will likely remain unchallenged in the foreseeable future due to the lack of viable alternatives, its value could continue to decline.

Sobel further noted that the trade war is just the latest example of this administration's "disdain for the rest of the world." The pillar of the dollar's dominance- "trusted partners and allies"- has been cast aside.

Long-term forex strategist Stephen Jen, head of Eurizon SLJ Capital, is more pessimistic. Jen argues that the dollar is currently overvalued by about 19% against major currencies. If a US recession forces the Fed to slash rates aggressively, cyclical, structural, and political factors could converge to trigger a sharp dollar depreciation.

Former New York Fed President Bill Dudley, however, believes the dollar could even strengthen.

In Dudley's view, tariffs will weaken the US economy and fuel inflation, while the impact on growth in other regions could be more severe. This means other central banks may cut rates more aggressively than the Fed, potentially weakening their currencies against the dollar.