The U.S. dollar experienced significant depreciation last year and fell again on Tuesday after President Donald Trump insisted its performance was "doing great." Automatic Data Processing Inc Chief Economist Nela Richardson told CNBC that a weaker dollar is a "double-edged sword" and also reflects that the U.S. economic picture is "showing cracks." Other market observers told the outlet that the dollar has entered a bear market and is likely to fall further.
Market observers pointed out on Wednesday that the dollar is mired in a bear market, with analysts warning that a weaker currency represents a "double-edged sword" for the U.S. economy. The dollar suffered its worst single-day plunge since April on Tuesday—a period when a series of so-called "liberation day" statements from Trump triggered a notable "sell U.S. assets" trade frenzy. This sharp decline occurred after Trump told reporters in Iowa that he believed the dollar was "doing great." The U.S. Dollar Index, which measures the greenback against a basket of major currencies, has fallen an additional 2.2% year-to-date in 2026 after dropping over 9% in 2025. ICE U.S. Dollar Index Real-Time Quote (USD) Trump has long promoted the benefits of a weaker dollar for international trade and has publicly criticized countries that intervene in foreign exchange markets to depress their currencies against the dollar. In July last year, he stated, "It sounds bad, but a weak dollar makes the U.S. a lot of money... far more than when the dollar is strong." He added that the ideal scenario is not an extremely weak dollar, but a moderately weaker one. Trump believes a strong dollar dampens tourism and causes U.S. suppliers to be "unable to sell anything." A weaker dollar does provide a boost to the domestic U.S. economy—for instance, by making American goods more attractive to overseas buyers, boosting exports, or increasing the dollar value of U.S. companies' overseas earnings when converted back. Although Trump insists dollar depreciation is "very good news" for America, a weaker currency also carries negative consequences, such as higher prices for imported goods and a loss of investor confidence.
A "Double-Edged Sword" Nela Richardson, in an interview with CNBC's "Squawk Box Europe" on Wednesday, described the dollar's decline as a "double-edged sword." She stated, "While a weaker dollar can enhance the competitiveness of U.S. exports abroad, the domestic weakening of the dollar does not always garner market confidence." "And that confidence is particularly crucial now—the U.S. economy faces numerous challenges, such as sticky inflation, high deficits and debt, and the need to issue U.S. Treasury bonds domestically and internationally." Richardson believes dollar depreciation means the "U.S. economic puzzle" is becoming more complex. Discussing data like unemployment and economic growth rates, she said, "The surface-level economic data doesn't tell the whole story. Although these core metrics are objectively strong, the dollar's weakness indicates that this seemingly positive economic picture is showing cracks." "If you knew nothing about the past year and only looked at these core figures... you would think the U.S. economy is exceptionally strong, implying the dollar should be strengthening and interest rate policy shouldn't be easing, but reality is different."
A K-Shaped Economic Landscape When asked if the Consumer Confidence Index, which hit a multi-decade low this month, is also a factor, Richardson said market concern persists despite apparent strength elsewhere in the economy due to one letter—K. She told the outlet, "U.S. consumer spending exhibits a K-shaped divergence: the top 20% by income are driving the vast majority of spending, while consumers in the bottom 25% are struggling under the weight of high inflation." "The surface data looks impressive, but the real problems lie beneath." Richardson added that this pattern is also evident in the labor market. She explained, "The labor market performance reflects this K-shaped consumption split: there's strong hiring demand in healthcare—a high-cost sector for most American consumers—and hiring is also increasing in leisure and hospitality, which are non-essential services for all consumers." "In other words, if you are well-off, the current economic environment is very favorable; but if you are not a high-income earner, times are tough."
The Dollar is in a Bear Market Cole Smead, CEO and Portfolio Manager at Smead Capital Management, stated on "Squawk Box Europe" on Wednesday that he believes the sell-off in the dollar is far from over. He said, "From a long-term perspective, we have entered a bear market for the dollar." "I say this because, looking back at historical periods of U.S. market 'mania'—like the telecom and tech bubbles of the late 1990s—the dollar peaked in 2002, and within the following six years, it fell to a low not seen for decades." Between 2002 and 2008, the U.S. Dollar Index plummeted approximately 41% from its peak. Smead noted, "This process took only six years. I want to emphasize that the period from 2002 to 2008 followed the U.S. stock market peak in 2000, so the end of such market manias is fundamentally a question of capital flows." Over the past decade, substantial capital flowed into U.S. markets, and the AI boom attracted a new wave of funds stateside. Smead pointed out that U.S. stocks now comprise a hefty 70% weighting in the MSCI All-Country World Index. He added, "Therefore, when investors eventually shift capital to other regions seeking higher returns, this outflow on the capital account will continue to pressure the dollar." Daniel Von Ahlen of London-based economic research firm TS Lombard also suggested in a report on Wednesday that, despite the surprising nature of the recent drop, the dollar has a tendency to weaken further. He said, "A rise in global risk appetite, soaring commodity prices, increased probability of Rick Rieder becoming the next Fed Chair, coupled with Trump's recent spat with Europe over Greenland, have all hammered the dollar, which should have been resilient in the first quarter." "The 'sell U.S. assets' trade is back." He also mentioned that upward revisions to U.S. Goodrich Petroleum Corporation growth forecasts in the second half of 2025, along with frequent TACO policies from the Trump administration, had previously supported dollar strength. Von Ahlen stated, "A consensus has formed expecting strong U.S. growth this year. Normally, growth expectations for other developed markets have greater room for upward revision, further reinforcing the case for dollar weakness." "Simultaneously, by most valuation metrics, the dollar remains at a significant premium, leaving it vulnerable to further declines."
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