U.S. dollar has lost its mojo since the election
The Sandbox Daily (3.24.2025)
Welcome, Sandbox friends.
Today’s Daily discusses:
U.S. dollar has lost the ground it gained since the election
Let’s dig in.
Blake
Markets in review
EQUITIES: Russell 2000 +2.55% | Nasdaq 100 +2.16% | S&P 500 +1.76% | Dow +1.42%
FIXED INCOME: Barclays Agg Bond -0.38% | High Yield +0.29% | 2yr UST 4.041% | 10yr UST 4.338%
COMMODITIES: Brent Crude +1.30% to $73.10/barrel. Gold -0.20% to $3,015.4/oz.
BITCOIN: +0.72% to $28,602
US DOLLAR INDEX: +0.19% to 104.291
CBOE TOTAL PUT/CALL RATIO: 0.82
VIX: -9.34% to 17.48
Quote of the day
“That his line will continue forever and endure before me like the sun.”
- Psalm 89:36
The U.S. dollar has lost the ground it gained since the election
After the U.S. election back in November, many anticipated that the U.S. dollar would continue its upward trajectory, even after hitting its highest level in real effective terms since the 1980s.
This was fueled by the belief that the Trump administration’s policies would stimulate real economic growth and reduce the probability of significant Fed rate cuts in 2025 and 2026.
At the same time, many other developed nations have shown stagnant economic growth or even contraction.
However, as you can see in the chart below, the dollar’s recent plunge has brought the U.S. dollar index to decline ~4.5% year-to-date, casting doubt on previous expectations.
Why is this happening?
As a quick reminder, the U.S. dollar index is a basket of six currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. In recent years, the dollar index has been an important signal for investors because it’s been negatively correlated with equities. Meaning, as the U.S. dollar is strengthening, stocks are generally weaker, and vice versa.
Current dynamics can be explained in part by interest rate differentials between the U.S. and other developed markets – a crucial short-term driver of the dollar – which have fallen from 2.0% to 1.5% since January.
This shift is largely due to increased expectations for Fed rate cuts, which have risen this year. The February CPI inflation report, which showed a modest +0.2% month-over-month increase in headline inflation, has further bolstered the case for more cuts.
Additionally, ongoing trade conflicts initiated by the U.S. may be perceived as more harmful to domestic growth than to international growth, contributing to the dollar's decline.
Also, in 2018, after Trump tariffs 1.0 were announced in March, the dollar index rose by 7-8% throughout the remainder of the year, as historical precedent shaped expectations as well.
For equity performance, a weaker dollar has been a boon for international equities this year. The euro and Japanese yen have appreciated by roughly 5% against the dollar YTD. This marks a significant reversal from last year, when a stronger dollar shaved off ~11% from Japanese equity returns and ~6% from European ex-UK equities.
Despite the current decline, the dollar remains highly valued, indicating potential for further depreciation.
This underscores the consideration of international diversification amid heightened uncertainty.
Source: YCharts
That’s all for today.
Blake
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Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. The information and opinions provided within should not be taken as specific advice on the merits of any investment decision by the reader. Investors should conduct their own due diligence regarding the prospects of any security discussed herein based on such investors’ own review of publicly available information. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily. Any projections, market outlooks, or estimates stated here are forward looking statements and are inherently unreliable; they are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.
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