In a shocking turn of events, the dollar plummeted to its lowest point in over three years on Thursday, while the FTSE 100 achieved a record-breaking close. This dramatic shift comes amid escalating trade threats from Donald Trump and a faltering US economy, prompting speculation about imminent interest rate cuts by the Federal Reserve.

Currency traders were quick to offload the dollar, opting instead for the safer havens of the yen and euro, both rising approximately 1% against the US dollar. Since the year began, the dollar has lost nearly 10% of its value against a basket of currencies.

Meanwhile, the FTSE 100 wrapped up the day at a historic 8,884 points—surpassing its previous record of 8,871 points set earlier this March. Investors are increasingly searching for alternatives to US equities.

Analysts are expressing concerns, noting a marked reduction in demand for dollars, especially as recent data indicates a weakening jobs market. The White House's unpredictable policies have only added to the gloomy economic outlook.

This downturn followed Trump's revival of last month’s threat to implement country-specific tariffs imminently. At a Washington event, Trump stated, "We’ll be sending letters out in about a week and a half, two weeks, to countries, telling them what the deal is." These comments have stirred unease among market players.

Additionally, market sentiment was rattled by speculation that the Federal Reserve might initiate borrowing cost reductions sooner than anticipated. Lower-than-expected consumer inflation and a drop in producer inflation have fueled these theories.

The uptick in unemployment claims also adds pressure—initial jobless support applications rose by 5,000 to reach 240,250, marking the highest level since August. Kit Juckes, chief foreign exchange strategist at Société Générale, noted, "There’s clearly solid dollar selling going on."

On the FTSE's impressive rally, UK investor strategist Neil Wilson remarked, "We’ve clearly seen a shift in global equity markets as investors, for the first time in years, question the idea that there’s no alternative to America.” He highlighted that “Investors are now focusing on geographic diversification and reducing their exposure to the US.”

Tensions are also brewing between India and the US regarding steel and aluminium imports, alongside potential tariffs on Indian pharmaceuticals, which could lead India to retaliate against American goods.

Bloomberg reported that US negotiators faced resistance from India over controversial demands, which included approval for genetically modified crops and the relaxation of medical device price controls.

In the UK, a potential trade boost looms as Trump indicated plans to implement a bilateral trade deal struck with Keir Starmer last month. This move would allow the UK to sidestep additional import duties on cars while offering looser quotas on US beef and ethanol exports.

UK Trade Secretary Jonathan Reynolds expressed optimism, stating that American tariffs on British cars are expected to be slashed "very soon" following a significant week of discussions.

However, the pound's ascension against the dollar to nearly $1.36 is stymied by worries that the UK is also facing economic challenges. A reported 0.3% slump in the economy this April raises concerns that the Bank of England may intervene sooner to cut interest rates, which could further dampen demand for sterling.

Vasileios Gkionakis, a senior economist at Aviva Investors, attributes the dollar's sustained depreciation to dwindling confidence in the US economy under Trump's leadership. He also cited rising government debt as a major deterrent for dollar investors.

Gkionakis stated, "Markets are restless, and to lend to the US, they would require a blend of higher interest rates coupled with a weaker exchange rate."