The U.S. dollar, which had rallied after President Donald Trump was elected in November last year, has recently weakened. The dollar index, which measures the value of the greenback against six major currencies, jumped around 6% between the U.S. presidential election on Nov. 5 and Trump’s inauguration on Jan. 20. But more than 50 days into his presidency, the index has fallen back to its pre-election level.
The value of other currencies has rebounded accordingly, but the South Korean won remains an exception. The won closed at 1,452.3 per dollar on March 11, still 5.5% weaker than on Nov. 5. Experts note that this underperformance stems from the won’s sensitivity to U.S. trade policy and South Korea’s sluggish economy, which has yet to show signs of recovery.
The U.S. dollar had been considered a key asset in the so-called “Trump trade,” as investors bet on assets expected to benefit from Trump’s policies. Many anticipated that Trump’s universal tariff policy would push import prices higher and drive inflation in the U.S., forcing the Federal Reserve to maintain or even raise interest rates, thereby strengthening the dollar.
However, inconsistencies in Trump’s strategy, alternating between imposing and delaying tariffs, have heightened uncertainty, dampening investor confidence and weakening the dollar.
Recent economic data suggest a potential U.S. recession, further depreciating the dollar. Data released on March 7 showed that the U.S. unemployment rate in February rose to 4.1%, up from 4% the previous month. In January, personal consumption expenditures fell 0.2% month-on-month, marking the steepest decline in four years since February 2021 (-0.6%).
A declining dollar without economic growth could drive up import costs, potentially weakening Trump’s strong political support base. Even Trump has not ruled out the possibility of a recession. In a Fox News interview on March 9, he said the country will see a “period of transition” as his policies take effect.
“There is a period of transition because what we’re doing is very big. We’re bringing wealth back to America. That’s a big thing… it takes a little time, but I think it should be great for us,” he said. This is a shift from his campaign rhetoric when he claimed his policies would bring swift economic gains.
The value of major currencies has all nearly returned to pre-election levels. The euro is back at €0.92 per dollar. The yen, which traded at 152 per dollar before the election, has strengthened to 147. The Chinese yuan, which had depreciated to 7.1 per dollar before the election, has now recovered to 7.25.
In contrast, the won has depreciated by 70 to 80 won per dollar compared to pre-election levels. The Bank of Korea estimates that about 20 won of this drop is due to instability caused by the martial law incident, but even after accounting for that, the decline is steep.
Experts attribute the depreciation to the won’s vulnerability to tariff policies. Goldman Sachs describes South Korea as one of the most exposed economies in Asia to U.S. tariff policies, estimating that a 10% reciprocal tariff from the U.S. could reduce South Korea’s GDP by 0.7%.
