Trump's speech impacts the US dollar, geopolitical risks trigger a chain reaction in the crypto market

The US Dollar Index DXY fell to an intraday low of 98.384. Behind this seemingly simple data lies a domino-like chain reaction in the market. Trump’s speech at Davos became the fuse, igniting concerns over geopolitical risks and policy uncertainties. The crypto market bore the brunt first, experiencing a collective pullback amid a sharp decline in risk appetite.

The Complete Story Chain of the US Dollar’s Decline

Speech triggers dollar decline

Trump’s speech at Davos directly caused the US Dollar Index to fall. But the real impact came from the policy directions implied in the speech content. According to relevant information, Trump threatened to impose a 10% new tariff on eight European countries, which quickly ignited risk aversion in the market.

Typically, the dollar is seen as a safe-haven asset and rises when geopolitical risks intensify, but this time was different. Trump’s tariff threats sparked fears of an escalation in trade wars and also weakened expectations of US policy stability. Analysts pointed out that the market reignited the “sell US” sentiment, putting the dollar under new downward pressure.

Market reaction to tariff threats

This isn’t Trump’s first time using tariffs as a negotiation tool. Relevant information mentions a market term “TACO trade” (Trump retreating at the last minute), reflecting market awareness of Trump’s policy routines: weekend tough talk → market sentiment first crashes, then cools down (bottom-fishing) → government officials come out to soothe → finally, an agreement is reached.

But this uncertainty itself is a risk. European stock markets opened sharply lower on Monday, with the Euro Stoxx 50 down 1.7%, Germany’s DAX down 1.3%, the UK FTSE 100 down 0.4%, France’s CAC40 down 0.7%, and Italy’s FTSE MIB down 1.6%.

Chain reaction in the crypto market

Longs Liquidation Wave

Crypto markets are most sensitive to declines in risk appetite. According to relevant information, Bitcoin rapidly retreated from last week’s high of $97,000, briefly falling below $92,000; Ethereum lost the $3,200 level; Solana dropped below $140; XRP even fell below $2.

Liquidation data reflects the panic level in the market. Over the past 4 hours, approximately $593 million was liquidated across the network, with longs accounting for nearly 90%. This means a large number of bullish investors were forcibly liquidated during the market decline, further accelerating the downward trend.

Change in Market Sentiment

Interestingly, analysis from Matrixport shows that despite Trump’s renewed tariff threats, implied volatility for Bitcoin and Ethereum only slightly increased. This reflects the market’s adaptation to volatility—since mid-November, overall implied volatility has significantly declined, with a total reduction of about 18-25 volatility points over the past two months.

This indicates that investors are adjusting their strategies: no longer chasing breakout moves, but instead engaging in range trading, collecting premiums by selling call options. This is a “yield enhancement” approach, but also suggests that market expectations are shifting from an upward trend to a sideways pattern.

Hidden Pressure from Federal Reserve Policy Changes

Leadership Changes

Changes in the Federal Reserve Chairperson also exert pressure on the market. Kevin Hasset publicly stated that Trump is more likely to want him to remain in office, essentially withdrawing from the race for the next Fed Chair. After this signal, market expectations quickly adjusted.

According to data from Kalshi and Polymarket, the probability of former Fed Governor Kevin W. becoming the next Fed Chair has surged to about 60%, clearly leading. This implies market expectations that Fed policy will shift from “dovish” to “hawkish.”

From “Dove” to “Hawk” Policy Shift

Analysts point out that behind this decline, an important factor is the “market’s expectation of the Fed’s new chair shifting from ‘dove’ to ‘hawk’.” A hawkish chair typically signals tighter monetary policy, which is negative for risk assets like cryptocurrencies.

Combined with Trump’s tariff threats, the market faces a “dual pressure”: fiscal policy uncertainty (tariff war) plus expectations of monetary tightening. This explains why risk appetite has sharply declined.

Market Logic and Future Focus

Current Market Consensus

Most analysts believe that the current situation is more like a sentiment-driven correction caused by profit-taking at high levels rather than a trend reversal. The market is waiting to see whether Trump’s policies will be implemented—whether he really intends to impose tariffs or if, as in past routines, an agreement will be reached in the end.

Signals to Watch

The “Trump moment” in the crypto industry has ended. According to Yat Siu, co-founder of Animoca, the next phase will be driven by real users, solid infrastructure, and regulation, rather than individual influence. This indicates a shift from policy-driven to fundamentals-driven market dynamics.

Meanwhile, the term of the Federal Reserve Chair ends on May 15, and Trump has said he will announce a successor within this month. This timing is crucial for market policy expectations.

Summary

The decline of the US Dollar Index reflects market concerns over Trump’s policy uncertainties. Geopolitical risks (tariff threats) and expectations of Fed policy shifts (from “dove” to “hawk”) create a dual pressure, with risk assets like cryptocurrencies bearing the brunt.

The key is understanding that the market is entering a “TACO trade” mode—waiting for policy reversals and eventual agreements. In the short term, declining risk appetite may continue to pressure crypto assets, but in the long run, it depends on whether Trump’s policies are actually implemented and the final policy direction after the Fed Chair appointment. Investors need to adapt flexibly in a high-volatility environment to cope with shocks from policy and macro uncertainties.