Why is the US dollar falling by record levels in 2025?

The United States dollar has had its worst archetypal six months of the twelvemonth since 1973, arsenic President Donald Trump’s economical policies person prompted planetary investors to merchantability their greenback holdings, threatening the currency’s “safe-haven” status.

The dollar index, which measures the currency’s spot against a handbasket of six others, including the pound, euro and yen, fell 10.8 percent successful the archetypal fractional of 2025.

President Trump’s stop-start tariff war, and his attacks that person led to worries implicit the independence of the Federal Reserve, person undermined the entreaty of the dollar arsenic a harmless bet. Economists are besides disquieted astir Trump’s “big, beautiful” taxation bill, presently nether statement successful the US Congress.

The landmark authorities is expected to adhd trillions of dollars to the US indebtedness heap implicit the coming decennary and has raised concerns astir the sustainability of Washington’s borrowing, prompting an exodus from the US Treasury market.

Meanwhile, golden has deed grounds highs this year, connected continued buying by cardinal banks disquieted astir devaluation of their dollar assets.

What has happened to the dollar?

On April 2, the Trump medication unveiled tariffs connected imports from astir countries astir the world, denting assurance successful the world’s largest system and causing a selloff successful US fiscal assets.

More than $5 trillion was erased from the worth of the benchmark S&P 500 scale of shares successful the 3 days aft “Liberation Day”, arsenic Trump described the time of his tariffs announcement. US Treasuries besides saw clear-outs, lowering their terms and sending indebtedness costs for the US authorities sharply higher.

Faced with a revolt successful fiscal markets, Trump announced a 90-day pause on tariffs, but for exports from China, connected April 9. While commercialized tensions with China – the world’s second-largest system – person since eased, investors stay wary of holding dollar-linked assets.

Last month, the Organisation for Economic Co-operation and Development (OECD) announced that it had chopped its US maturation outlook for this twelvemonth from 2.2 percent successful March to conscionable 1.6 percent, adjacent arsenic ostentation has slowed.

Looking ahead, Republican leaders are trying to propulsion done Trump’s One Big Beautiful Bill Act done Congress earlier July 4. The measure would widen Trump’s 2017 taxation cuts, slash healthcare and payment spending and summation borrowing.

While immoderate legislators judge it could instrumentality until August to walk the bill, the purpose would beryllium to rise the borrowing bounds connected the country’s $36.2 trillion indebtedness pile. The non-partisan Congressional Budget Office said it would rise Federal indebtedness by $3.3 trillion by 2034.

That would importantly rise the government’s debt-to-GDP (gross home product) ratio from 124 percent today, raising concerns astir semipermanent indebtedness sustainability. Meanwhile, yearly deficits – erstwhile authorities spending exceeds taxation revenues – would emergence to 6.9 percent of GDP from astir 6.4 percent successful 2024.

So far, Trump’s attempts to little spending done Elon Musk’s Department of Government Efficiency person fallen abbreviated of expectations. And though import tariffs person raised gross for the government, they’ve been paid for – successful the signifier of higher costs – by American consumers.

The upshot is that Trump’s unpredictable policies, which prompted Moody’s standing bureau to strip the US authorities of its apical recognition score successful May, person slowed US maturation prospects this twelvemonth and dented the request for its currency.

The dollar has besides trended down connected expectations that the Federal Reserve volition chopped involvement rates to enactment the United States’ economy, urged connected by Trump, with 2 to 3 reductions expected by the extremity of this year, according to levels implied by futures contracts.

Is the US becoming a ‘less attractive’ destination?

Owing to its dominance successful commercialized and finance, the dollar has been the world’s currency anchor. In the 1980s, for instance, galore Gulf countries began pegging their currencies to the greenback.

Its power doesn’t halt there. Though the US accounts for one-quarter of planetary GDP, 54 percent of satellite exports were denominated successful dollars successful 2023, according to the Atlantic Council.

Its dominance successful concern is adjacent greater. About 60 percent of each slope deposits are denominated successful dollars, portion astir 70 percent of planetary bonds are quoted successful the US currency.

Meanwhile, 57 percent of the world’s overseas currency reserves – assets held by cardinal banks – are held successful dollars, according to the IMF.

But the dollar’s reserve presumption is supported by assurance successful the US economy, its fiscal markets and its ineligible system.

And Trump is changing that. Karsten Junius, main economist astatine Bank J Safra Sarasin, says “investors are opening to realise that they’re over-exposed to US assets.”

Indeed, foreigners ain $19 trillion of US equities, $7 trillion of US Treasuries and $5 trillion of US firm bonds, according to Apollo Asset Management.

If investors proceed to trim their positions, the dollar’s worth could proceed to travel nether sustained pressure.

“The US has go a little charismatic spot to put these days… US assets are not arsenic harmless arsenic they utilized to be,” Junius told Al Jazeera.

What are the consequences of a lower-value dollar?

Many wrong the Trump medication reason that the costs of the US dollar’s reserve presumption outweigh the benefits – due to the fact that that raises the outgo of US exports.

Stephen Miran, seat of Trump’s Council of Economic Advisers, has said precocious dollar valuations spot “undue burdens connected our firms and workers, making their products and labour uncompetitive connected the planetary stage”.

“The dollar’s overvaluation has been 1 origin contributing to the US’s nonaccomplishment of competitiveness implicit the years, and… tariffs are a absorption to this unpleasant reality,” helium added.

At archetypal blush, a little dollar would so marque US goods cheaper to overseas buyers and marque imports much expensive, helping to trim the country’s commercialized deficits. However, these emblematic commercialized effects stay successful flux owed to ongoing tariff threats.

For processing countries, a weaker greenback volition little the section currency outgo of repaying dollar debt, providing alleviation to heavy indebted countries similar Zambia, Ghana oregon Pakistan.

Elsewhere, a weaker dollar should boost commodity prices, expanding export revenues for countries exporting oil, metals oregon cultivation goods specified arsenic Indonesia, Nigeria and Chile.

Have different currencies done well?

Since the commencement of Trump’s 2nd word successful office, the greenback’s descent has upended wide predictions that his commercialized warfare would bash greater harm to economies extracurricular the US, portion besides spurring US ostentation – strengthening the currency against its rivals.

Instead, the euro has risen 13 percent to supra $1.17 arsenic investors proceed to absorption connected maturation risks wrong the US. At the aforesaid time, request has risen for different harmless assets similar German and French authorities bonds.

For American investors, the weaker dollar has besides encouraged equity investments abroad. The Stoxx 600 index, a wide measurement crossed European stocks, has risen astir 15 percent since the commencement of 2025.

Converted backmost into dollars, that summation amounts to 23 percent.

Meanwhile, ostentation – again belying predictions – has travel down from 3 percent successful January to 2.3 percent successful May.

According to Junius, determination is nary important menace to the dollar’s presumption arsenic the world’s de facto reserve currency anytime soon.

But “that doesn’t mean that you can’t person much of a weakening successful the US dollar,” helium said. “In fact, we proceed to expect that betwixt present and the extremity of the year.”