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The US greenback is headed for its worst first half of the yr since 1973, as Donald Trump’s commerce and financial insurance policies immediate world buyers to rethink their publicity to the world’s dominant forex.
The greenback index, which measures the forex’s energy in opposition to a basket of six others together with the pound, euro and yen, has slumped greater than 10 per cent up to now in 2025, the worst begin to the yr because the finish of the gold-backed Bretton Woods system.
“The greenback has grow to be the whipping boy of Trump 2.0’s erratic insurance policies,” mentioned Francesco Pesole, an FX strategist at ING.
The president’s stop-start tariff war, the US’s huge borrowing wants and worries concerning the independence of the Federal Reserve had undermined the enchantment of the greenback as a protected haven for buyers, he added.
The forex was down 0.3 per cent on Monday because the US Senate ready to start voting on amendments to Trump’s “massive, lovely” tax invoice.
The landmark laws is anticipated so as to add $3.2tn to the US debt pile over the approaching decade and has fuelled considerations over the sustainability of Washington’s borrowings, sparking an exodus from the US Treasury market.
The dollar’s sharp decline places it on target for its worst first half of the yr since a 15 per cent loss in 1973 and the weakest exhibiting over any six-month interval since 2009.
The forex’s slide has confounded widespread predictions in the beginning of the yr that Trump’s commerce conflict would do higher harm to economies exterior the US whereas fuelling American inflation, strengthening the forex in opposition to its rivals.
As a substitute, the euro, which a number of Wall Avenue banks have been predicting would fall to parity with the greenback this yr, has risen 13 per cent to above $1.17 as buyers have centered on progress dangers on the planet’s largest economic system — whereas demand has risen for protected property elsewhere, comparable to German bonds.
“You had a shock by way of liberation day, by way of the US coverage framework,” mentioned Andrew Balls, chief funding officer for world mounted revenue at bond group Pimco, referring to Trump’s “reciprocal tariffs” announcement in April.
There was no vital menace to the greenback’s standing because the world’s de facto reserve forex, Balls argued. However that “doesn’t imply that you could’t have a big weakening within the US greenback”, he added, highlighting a shift amongst world buyers to hedge extra of their greenback publicity, exercise which itself drives the dollar decrease.
Additionally pushing the greenback decrease this yr have been rising expectations that the Fed will reduce charges extra aggressively to assist the US economic system — urged on by Trump — with at the least 5 quarter-point cuts anticipated by the tip of subsequent yr, in accordance with ranges implied by futures contracts.
Bets on decrease charges have helped US shares to shake off commerce conflict considerations and battle within the Center East to succeed in report highs. However the weaker greenback means the S&P 500 continues to lag far behind rivals in Europe when the returns are measured in the identical forex.
Massive buyers from pension funds to central financial institution reserve managers have acknowledged their need to scale back their publicity to the greenback and US property, and questioned whether or not the forex remains to be offering a haven from market swings.
“International buyers are requiring higher FX hedging for dollar-denominated property, and that has been one other issue stopping the greenback from following the US fairness rebound,” mentioned ING’s Pesole.
Gold has additionally hit report highs this yr on continued shopping for by central banks and different buyers apprehensive about devaluation of their greenback property.
The greenback stoop has taken it to its weakest degree in opposition to rival currencies in additional than three years. Given the velocity of the decline, and the recognition of bearish greenback bets, some analysts anticipate the forex to stabilise.
“A weaker greenback has grow to be a crowded commerce and I think the tempo of decline will sluggish,” mentioned Man Miller, chief market strategist at insurance coverage group Zurich.
