The dollar's crown is slipping, and fast

By Dhara Ranasinghe and Amanda Cooper

LONDON (Reuters) -The dollar (DX=F) has sunk to its lowest in three years as rapidly changing U.S. trade policy unsettles markets and expectations build for Federal Reserve rate cuts, fuelling outflows from the world’s biggest economy.

With the dollar down almost 10% against a basket of major currencies this year, other countries around the globe are grappling with unanticipated FX moves that are having a knock-on impact on economic growth and inflation.

“There’s clearly solid dollar selling,” said Kit Juckes, chief FX strategist at Societe Generale.

Here’s a look at some of the biggest movers:

Scandinavia’s currencies are the standout performers against the dollar so far in 2025. The Swedish crown is up 14%, its best performance at this point in the year against the U.S. currency in at least 50 years. Norway’s crown is up nearly 12%, its best run since 2008.

Highlighting just how much of this strength stems from dollar weakness, Sweden’s crown is up only 4% against the euro and Norway’s just 1.8%.

Sweden is expected to cut rates this month as inflation and its economy slow, yet its currency shows no signs of weakening. In Norway, lower oil prices often temper the crown, but that dynamic has also been upended by its relationship with the dollar.

The euro, Swiss franc and Japanese yen are also among the biggest beneficiaries of the dollar’s fall from grace, up roughly 10% each so far this year.

But this comes at a price.

Swiss inflation turned negative in May, marking the first decline in consumer prices for more than four years. The surge in the franc reduces the price of imported goods, and piles pressure on the central bank to cut rates back below 0%.

European Central Bank rate setters will also have a wary eye on the single currency, which at around $1.1572 is at its highest since 2021.

“In my heart-of-hearts we are going to get to $1.20 but we shouldn’t get there too fast because it’s deflationary,” said SocGen’s Juckes.

Even after the recent surge, the yen remains down almost 30% from end-2020 levels, leaving Japan to try to balance the negatives of a stronger currency with the need to demonstrate in trade talks with Washington that it is not seeking an unfair advantage from its longer-term weakness.

For years, Asian investors parked trillions of dollars in U.S. assets such as Treasuries. U.S. President Donald Trump’s April 2 “Liberation Day” fired the starting gun for that capital to start flowing back to the world’s manufacturing powerhouses, boosting their currencies.