The value of the dollar continued to drop on Monday, falling to a four-month low as uncertainty surrounding tariffs, the Federal Reserve, and a potential government shutdown put downward pressure on the greenback.
The dollar index dropped as low as 96.85 on Monday, down from recent highs of over 99 just last week. The Bloomberg Dollar Spot Index reached nearly 110 in January 2025. The relative value of the greenback has fallen 11.7% since that time in January of last year.
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The most recent dip is attributable to quickly evolving factors, such as a possible intervention to help the struggling Japanese yen and the growing potential for yet another government shutdown in the coming days.
But in the longer term, experts contend the dollar’s slide is being fueled by uncertainty in the U.S. economy, mounting concerns about the independence of the Fed and questions about what might come next for federal tariff policy.
“If I had to summarize the dollar, defining in one word, it would be uncertainty,” Steve Swedberg, finance and monetary policy analyst at the Competitive Enterprise Institute, told the Washington Examiner.
Still, while the dollar has fallen directionally in recent days, and more broadly over the past year or so, it is still at levels that historically haven’t set off alarm bells. For instance, it was in the 70s and 80s for years following the 2008 financial crisis.
The White House told the Washington Examiner on Monday that President Donald Trump remains committed to a strong dollar.
“President Trump remains committed to the strength and power of the U.S. Dollar as the world’s reserve currency,” spokesman Kush Desai said in a statement. “Foreign holdings of U.S. Treasuries reaching an all-time high and trillions in investment commitments to make and hire in America are all proof that the Trump administration’s policies are cementing America’s economic might.”
The yen
On Monday, speculation began to mount that given weakness in the Japanese yen, there might be some sort of intervention.
The Federal Reserve Bank of New York has reportedly checked dollar and yen rates with dealers, which is seen as a precursor to a possible intervention. The yen strengthened on the news, while the dollar dipped in response.
“[The Bank of Japan] would sell dollars and buy yen to strengthen the yen currency — that would strengthen the yen, you would offer more dollars to the market, you’re selling dollar assets and buying yen assets, that tends to drive up the yen against the dollar,” Gian Maria Milesi-Ferretti, senior fellow at the Brookings Institute, told the Washington Examiner.
If the U.S. were to help, it would mark the first time it has stepped in to rescue the yen since 1998.
Government shutdown
Over the weekend, a man in Minnesota was killed by a Border Patrol agent during a confrontation. The death comes amid a wave of protests against the Trump administration and as the Senate has mere days to vote to approve a government funding bill.
The shooting has increased pressure on some Democrats who were previously planning to vote for the measure to vote it down. That is because one of the six funding bills includes funding for the Department of Homeland Security, which oversees the Border Patrol and ICE.
Anytime there is a government shutdown, or the potential for a government shutdown, it can fuel uncertainty in the markets and cause the dollar to dip.
“When you have a shutdown, when you have political gridlock, the concern is that whether or not the government is going to be able to manage its finances, and as a result, investors are less likely to hold dollar-denominated assets in anticipation of these interruptions,” Swedberg said.
Stephen Kates, a financial analyst at Bankrate, pointed out that the length of any shutdown also matters to the dollar.
The U.S. had the longest government shutdown in history late last year, which delayed the release of economic data collected by the government. While the government was shut down, the Fed was flying partially blind because it lacked key inflation reports and jobs data when deciding what to do with interest rates. So a longer shutdown could cause more uncertainty on that front.
“It calls into question the government’s functioning in a way,” Kates told the Washington Examiner. “It’s not that we’re necessarily going to be defaulting on our debts simply because of the shutdown, but it just demonstrates a lot of dysfunction. … We don’t need that to be the projection to U.S. citizens, let alone the world.”
Tariff and international uncertainty
The even bigger driver of uncertainty has been international trade and tariff policies as well as international relations and diplomacy.
Trump came into office pledging the most aggressive tariff agenda in history. But many of the “Liberation Day” tariffs have since been peeled back, some categories of products exempted, and major questions remain about what the tariff landscape might look like if the Supreme Court rules against his tariffs in the coming weeks.
All of that uncertainty is not good for business or the markets. In part, that is because companies and firms might not be able to make key decisions without knowing what policies might look like in the years ahead.
“Like, for the auto industry, where do we build a factory?” Swedberg said. “Do we hire more people? Do we shut down offices?”
The dollar has also been tested by international tensions — for instance, the Trump administration’s recent push to acquire Greenland. Trump clarified that the U.S. had no intention of using force to acquire the land, although the prospect of some sort of conflict spooked the markets.
Plus, over the weekend, Trump threatened 100% tariffs on Canada if it makes a deal with China.
“You have tariff policy going up and down, you have fiscal dynamics that look very worrisome, you have difficulty in reaching agreement on any measure related to the budget,” Milesi-Ferretti said.
The Fed
Finally, the Fed, and more specifically Fed independence, could be weighing on the greenback.
Recently, Fed Chairman Jerome Powell made a surprise announcement that the Justice Department was investigating him. Powell revealed the Fed recently received grand jury subpoenas related to testimony he gave to the Senate last year about renovation cost overruns of the Fed headquarters building in Washington, D.C.
Dennis Lockhart, former president of the Federal Reserve Bank of Atlanta, told the Washington Examiner that Fed independence is among the factors as to why the dollar has dipped.
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“Certainly, the noise about Fed independence and the perceived pressure that’s been put on the Fed by President Trump is a factor,” Lockhart said.
Still, outside of the Fed, he suggested, there is a “wider questioning of the reliability of the United States broadly that may be accelerating diversification away from the dollar and away from U.S. assets.”