The worst in history! The US dollar has just fallen out of a

Source: Wall Street News

The dollar has set its worst trend since the beginning of the year on record, and the "hidden clauses" hidden in Trump's latest tax law may further exacerbate the dollar's decline.

According to Dow Jones market data, the US dollar's 8.4% decline in the first five months of this year hit its worst opening-year performance against a basket of global currencies. The U.S. dollar index is currently trading near its lowest level since spring 2022.

Bank of America pointed out that foreign exchange rates are the most important price in an open economy. It is not only an asset class, but also a "strong transmission mechanism for macroeconomic policies." The current signals from this special field may further weaken the US dollar.

Deep in the federal tax and expenditure bill passed last week and is currently under consideration by the Senate, there is an explosive Section 899 hidden. The new rule, known as the "retaliation tax", would allow the government to impose a new tax on foreign investments in countries deemed to have an unfair or discriminatory tax system.

Analysis pointed out that the clause may escalate the trade war into a capital war, directly threatening the trillions of US assets held by foreign investors, and may lead to large-scale withdrawal of US assets by foreign investors.

"Asset Tax" threatens global capital flow

"Asset Tax" may cause investors from regions such as Europe to face additional fees when remitting capital gains, dividends or U.S. Treasury coupon payments. The digital service tax imposed by Europe on U.S. tech giants has been the focus of the Trump administration’s anger and has been often cited as a prime example of EU non-tariff barriers.

"This potential power game against foreign holdings based on U.S. assets may ultimately slow down interest in returning surpluses to the U.S. capital market. From the perspective of capital flows, the behavior of major players in finding alternatives to U.S. assets is clearly unfavorable to the U.S. dollar," said John Hardy, head of global macro strategy at Saxo Bank.

Some important market participants have already begun to act. The euro, the most weighted dollar-based euro in the global foreign exchange market, has risen 11% this year. Despite the relatively weak euro zone economy, the European Central Bank has cut interest rates twice this year and may cut interest rates again in Frankfurt this Thursday.

Despite little interest income for short-term investments, the yen has risen 9% this year. The pound also rose 8% despite the Bank of England's interest rate cuts and the economy slowed down.

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