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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 international traders to rethink their publicity to the world’s dominant foreign money.
The greenback index, which measures the foreign money’s power in opposition to a basket of six others together with the pound, euro and yen, has slumped greater than 10 per cent to this point in 2025, the worst begin to the yr for the reason that finish of the gold-backed Bretton Woods system.
“The greenback has turn into the whipping boy of Trump 2.0’s erratic insurance policies,” stated Francesco Pesole, an FX strategist at ING.
The president’s stop-start tariff war, the US’s huge borrowing wants and worries in regards to the independence of the Federal Reserve had undermined the enchantment of the greenback as a protected haven for traders, he added.
The foreign money was down 0.5 per cent on Monday because the US Senate ready to start voting on amendments to Trump’s “large, stunning” 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 the right track for its worst first half of the yr since a 15 per cent loss in 1973 and the weakest displaying over any six-month interval since 2009.
The foreign money’s slide has confounded widespread predictions firstly of the yr that Trump’s commerce battle would do higher harm to economies outdoors the US whereas fuelling American inflation, strengthening the foreign money in opposition to its rivals.
As an alternative, the euro, which a number of Wall Road banks had been predicting would fall to parity with the greenback this yr, has risen 13 per cent to above $1.17 as traders have targeted on development dangers on the planet’s largest financial system — whereas demand has risen for protected belongings elsewhere, similar to German bonds.
“You had a shock by way of liberation day, by way of the US coverage framework,” stated Andrew Balls, chief funding officer for international fastened revenue at bond group Pimco, referring to Trump’s “reciprocal tariffs” announcement in April.
There was no vital risk to the greenback’s standing because the world’s de facto reserve foreign money, Balls argued. However that “doesn’t imply that you could’t have a major weakening within the US greenback”, he added, highlighting a shift amongst international traders 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 lower charges extra aggressively to help the US financial system — urged on by Trump — with no less than 5 quarter-point cuts anticipated by the top of subsequent yr, in response to ranges implied by futures contracts.
Bets on decrease charges have helped US shares to shake off commerce battle 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 foreign money.
Massive traders from pension funds to central financial institution reserve managers have said their need to cut back their publicity to the greenback and US belongings, and questioned whether or not the foreign money remains to be offering a haven from market swings.
“Overseas traders are requiring higher FX hedging for dollar-denominated belongings, and that has been one other issue stopping the greenback from following the US fairness rebound,” stated ING’s Pesole.
Gold has additionally hit report highs this yr on continued shopping for by central banks and different traders nervous about devaluation of their greenback belongings.
The greenback hunch 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 foreign money to stabilise.
“A weaker greenback has turn into a crowded commerce and I think the tempo of decline will gradual,” stated Man Miller, chief market strategist at insurance coverage group Zurich.
