The dollar could have further to fall as its decline creates a 'double-edged sword' for America

The dollar is successful a carnivore market, marketplace watchers said connected Wednesday, arsenic 1 warned the weaker greenback is simply a "double-edged sword" for the U.S. economy.  

Tuesday saw the dollar endure its worst one-day descent since April — erstwhile Trump's alleged "liberation day" announcements sparked what became known arsenic the sell America trade. The diminution came aft the president told reporters successful Iowa helium believes the dollar is "doing great."

The U.S. dollar index, which measures the greenback against a handbasket of large rivals, has shed 2.2% truthful acold this year, aft falling much than 9% successful 2025.

Dollar index

Trump has agelong touted the benefits of a devalued U.S. dollar successful narration to planetary trade, and openly lambasted countries that intervene successful overseas speech markets to little the worth of their ain currencies against the greenback.

"It doesn't dependable good, but you marque a hellhole of a batch much wealth with a weaker dollar... than you bash with a beardown dollar," helium said successful July, adding that the perfect script is not an highly anemic dollar, but a moderately weaker one. A beardown dollar dampens tourism and means U.S. suppliers "can't merchantability anything," helium said.

A anemic dollar tin supply a boost to the home system — for example, by making U.S. goods much charismatic to overseas buyers and boosting exports, oregon bolstering the worth of American firms' overseas net erstwhile they are converted backmost to USD.

Despite Trump's insistence that the diminution of the dollar is "great" quality for the U.S., determination are besides negatives attached to a weaker currency — similar pricier imports, oregon a nonaccomplishment of assurance from investors.

Speaking to CNBC's "Squawk Box Europe" connected Wednesday, Nela Richardson, ADP's main economist, dubbed the diminution of the dollar a "double-edged sword."

"[It] does marque U.S. exports much competitory abroad, but a anemic dollar astatine location doesn't ever person the assurance of markets," she said. "And that assurance is going to beryllium precise important arsenic we look astatine different things that are a conflict for the U.S. economy, similar sticky inflation, similar precocious deficits and debts, and the request to merchantability treasuries, some domestically and abroad."

Richardson argued that the diminution of the dollar meant the "puzzle of the U.S. economy" had go progressively complex.

"The header numbers don't archer the full story, and that dollar weakness is simply a motion of the fraying of that communicative adjacent though the header numbers objectively are strong," she said, referring to information points similar the unemployment complaint and economical growth.

"If you knew thing astir the past year, but conscionable saw the header numbers … you would seizure a precise beardown U.S. system that would suggest a stronger dollar and an involvement complaint argumentation that was not going lower, but that is not wherever we find ourselves today," she said.

Asked whether user assurance — which fell to its lowest successful much than a decennary this period — played into this picture, Richardson said the crushed markets were acrophobic astir the fig erstwhile different areas of the system appeared beardown was "a letter: it's 'K.'"

"It's a K-shaped user spending signifier wherever the apical 20% of income earners are driving astir of the spending successful the United States, and the little quartile of consumers are struggling implicit the higher gait of inflation," she told CNBC. "The numbers look good, but underneath the aboveground is wherever each the enactment is."

This was besides evident successful the labour market, Richardson added.

"[It's] reflecting that K-shaped user wherever we're seeing hiring successful wellness attraction services, which are costly services successful the United States for astir consumers, and leisure and hospitality, which is simply a discretionary work for each consumers," she explained. "So, if you are good heeled, this system is large for you. If you are not, it's a struggle."

Cole Smead, CEO and portfolio manager astatine Smead Capital Management, told CNBC's "Squawk Box Europe" connected Wednesday that helium expects the dollar sell-off has further to run.

"We're successful a dollar carnivore marketplace longer term," helium said. "I accidental that due to the fact that if you spell backmost and look astatine these 'American manias' [in markets], if you spell backmost and look astatine the telecom bubble and tech bubble the precocious 1990s, the dollar peaked successful 2002 and wrong six years, you saw the dollar spell to a debased it hadn't seen for [a] very, precise agelong time."

From its 2002 highest to its 2008 low, the U.S. dollar scale nosedived by astir 41%.

"That lone took six years," Smead said. "I constituent that retired due to the fact that that was '02 to '08 and the U.S. banal marketplace peaked successful 2000 so, ending these manias, it's a superior travel problem."

A immense magnitude of superior has flowed into the U.S. implicit the past decade, with the AI roar luring caller bouts of superior into American markets. Smead noted that 70% of the MSCI World Index is presently comprised of U.S. stocks.

"And truthful arsenic wealth volition travel yet [to] different places, arsenic [investors] question retired amended returns, we're going to spot the dollar conflict due to the fact that of that superior relationship question abroad," Smead added.

In a enactment connected Wednesday, TS Lombard's Daniel Von Ahlen agreed that the dollar was poised to determination lower, contempt its caller sell-off coming arsenic a surprise.

"Strong planetary hazard sentiment, surging commodity prices, rising likelihood for Rick Rieder arsenic the adjacent Fed seat and Trump's caller enactment with Europe implicit Greenland each torpedo what was different looking to beryllium a resilient Q1 for the greenback," helium said. "The 'sell America' commercialized is back."

He added that revised U.S. GDP forecasts, coupled with "Trump's repeated TACOing," had supported dollar resilience successful the second fractional of 2025.

"Strong maturation successful the U.S. this twelvemonth is present consensus. Ordinarily, determination should beryllium much scope for different [developed markets] maturation forecasts to drawback up, which reinforces the dollar carnivore case," Von Ahlen said. "At the aforesaid time, the dollar is inactive trading astatine a affluent premium connected astir valuation metrics, leaving it susceptible to further declines."