The US dollar has posted its worst first-half decline since 1973, falling 10.8% against a basket of major currencies, as Donald Trump’s second-term economic policies unsettle global investors and prompt a sharp rethink of exposure to dollar-denominated assets, the Financial Times reported.
The sell-off, which comes amid fears over the ballooning US deficit, political pressure on the Federal Reserve, and uncertainty from Trump’s “reciprocal tariff” strategy, has shocked markets that had expected the dollar to strengthen in a time of geopolitical turbulence.
Market confidence rattled by debt and Fed concerns
The greenback’s steep fall coincides with mounting alarm over the sustainability of US borrowing. Trump’s sweeping tax and spending bill — dubbed the “big, beautiful bill” — is expected to add $3.2 trillion to the national debt over the next decade. As Senate lawmakers began debating amendments to the bill on Monday, the dollar slid a further 0.6%.
“The dollar has become the whipping boy of Trump 2.0’s erratic policies,” said Francesco Pesole, an FX strategist at ING, who cited the unpredictability of US economic management and pressure on the Fed to cut rates more aggressively.
Expectations of as many as five rate cuts by the end of 2026 have put downward pressure on the currency, even as the S&P 500 touched a record high on Monday. However, when measured in euros, the US stock market has significantly underperformed European benchmarks.
Foreign investors reduce dollar exposure
The shift in sentiment has led to a notable retreat by foreign investors — from pension funds to central banks — who are increasingly hedging or reducing their dollar exposure. Demand for US Treasury bonds has also weakened, contributing to the dollar’s slide.
“There is no immediate threat to the dollar’s role as the world’s reserve currency,” said Andrew Balls of Pimco. “But that doesn’t mean you can’t have a significant weakening,” he added, pointing to a structural pivot in how global institutions view US assets.
Meanwhile, gold prices have soared to record highs on the back of central bank purchases and concerns about devaluation of dollar reserves, underlining the market’s risk aversion.
Euro and global rivals rally
Contrary to expectations from Wall Street at the start of 2025 — where analysts had predicted euro-dollar parity — the euro has risen 13% this year, climbing above $1.17. Investors now appear more focused on downside risks in the US than in the Eurozone, where German bonds and other safe assets have attracted inflows.
Guy Miller, chief market strategist at Zurich Insurance, believes the dollar’s dramatic slide may now start to slow. “A weaker dollar has become a crowded trade and I suspect the pace of decline will ease,” he said.
Still, the first half of 2025 has brought an unexpected and historic shift in global currency dynamics. While the dollar remains dominant, the combination of policy uncertainty, spiralling debt, and eroding faith in US economic stewardship is weakening its aura of safety — and reordering capital flows across the globe.
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