America greenback has had its worst first six months of the yr since 1973, as President Donald Trump’s financial insurance policies have prompted international traders to promote their dollar holdings, threatening the foreign money’s “safe-haven” standing.
The greenback index, which measures the foreign money’s energy in opposition to a basket of six others, together with the pound, euro and yen, fell 10.8 % within the first half of 2025.
President Trump’s stop-start tariff struggle, and his assaults which have led to worries over the independence of the Federal Reserve, have undermined the enchantment of the greenback as a secure guess. Economists are additionally fearful about Trump’s “huge, lovely” tax invoice, presently underneath debate within the US Congress.
The landmark laws is anticipated so as to add trillions of {dollars} to the US debt pile over the approaching decade and has raised issues in regards to the sustainability of Washington’s borrowing, prompting an exodus from the US Treasury market.
In the meantime, gold has hit report highs this yr, on continued shopping for by central banks fearful about devaluation of their greenback belongings.
What has occurred to the greenback?
On April 2, the Trump administration unveiled tariffs on imports from most international locations around the globe, denting confidence on this planet’s largest financial system and inflicting a selloff in US monetary belongings.
Greater than $5 trillion was erased from the worth of the benchmark S&P 500 index of shares within the three days after “Liberation Day”, as Trump described the day of his tariffs announcement. US Treasuries additionally noticed clear-outs, reducing their worth and sending debt prices for the US authorities sharply larger.
Confronted with a revolt in monetary markets, Trump introduced a 90-day pause on tariffs, aside from exports from China, on April 9. Whereas commerce tensions with China – the world’s second-largest financial system – have since eased, traders stay cautious of holding dollar-linked belongings.
Final month, the Organisation for Financial Co-operation and Growth (OECD) introduced that it had reduce its US progress outlook for this yr from 2.2 % in March to simply 1.6 %, whilst inflation has slowed.
Wanting forward, Republican leaders are attempting to push by means of Trump’s One Large Lovely Invoice Act by means of Congress earlier than July 4. The invoice would lengthen Trump’s 2017 tax cuts, slash healthcare and welfare spending and improve borrowing.
Whereas some legislators consider it may take till August to go the invoice, the purpose can be to boost the borrowing restrict on the nation’s $36.2 trillion debt pile. The non-partisan Congressional Funds Workplace mentioned it could elevate Federal debt by $3.3 trillion by 2034.
That will considerably elevate the federal government’s debt-to-GDP (gross home product) ratio from 124 % immediately, elevating issues about long-term debt sustainability. In the meantime, annual deficits – when state spending exceeds tax revenues – would rise to six.9 % of GDP from about 6.4 % in 2024.
To this point, Trump’s makes an attempt to decrease spending by means of Elon Musk’s Division of Authorities Effectivity have fallen wanting expectations. And although import tariffs have raised income for the federal government, they’ve been paid for – within the type of larger prices – by American shoppers.
The upshot is that Trump’s unpredictable insurance policies, which prompted Moody’s ranking company to strip the US authorities of its prime credit score rating in Could, have slowed US progress prospects this yr and dented the demand for its foreign money.
The greenback has additionally trended down on expectations that the Federal Reserve will reduce rates of interest to help the US’ financial system, urged on by Trump, with two to a few reductions anticipated by the tip of this yr, in response to ranges implied by futures contracts.
Is the US turning into a ‘much less enticing’ vacation spot?
Owing to its dominance in commerce and finance, the greenback has been the world’s foreign money anchor. Within the Eighties, as an illustration, many Gulf international locations started pegging their currencies to the dollar.
Its affect doesn’t cease there. Although the US accounts for one-quarter of worldwide GDP, 54 % of world exports have been denominated in {dollars} in 2023, in response to the Atlantic Council.
Its dominance in finance is even better. About 60 % of all financial institution deposits are denominated in {dollars}, whereas practically 70 % of worldwide bonds are quoted within the US foreign money.
In the meantime, 57 % of the world’s international foreign money reserves – belongings held by central banks – are held in {dollars}, in response to the IMF.
However the greenback’s reserve standing is supported by confidence within the US financial system, its monetary markets and its authorized system.
And Trump is altering that. Karsten Junius, chief economist at Financial institution J Safra Sarasin, says “traders are starting to understand that they’re over-exposed to US belongings.”
Certainly, foreigners personal $19 trillion of US equities, $7 trillion of US Treasuries and $5 trillion of US company bonds, in response to Apollo Asset Administration.
If traders proceed to trim their positions, the greenback’s worth may proceed to come back underneath sustained strain.
“The US has change into a much less enticing place to take a position lately… US belongings are usually not as secure as they was,” Junius informed Al Jazeera.
What are the implications of a lower-value greenback?
Many inside the Trump administration argue that the prices of the US greenback’s reserve standing outweigh the advantages – as a result of that raises the price of US exports.
Stephen Miran, chair of Trump’s Council of Financial Advisers, has mentioned excessive greenback valuations place “undue burdens on our companies and employees, making their merchandise and labour uncompetitive on the worldwide stage”.
“The greenback’s overvaluation has been one issue contributing to the US’s lack of competitiveness through the years, and… tariffs are a response to this disagreeable actuality,” he added.
At first blush, a decrease greenback would certainly make US items cheaper to abroad consumers and make imports costlier, serving to to cut back the nation’s commerce deficits. Nonetheless, these typical commerce results stay in flux as a result of ongoing tariff threats.
For creating international locations, a weaker dollar will decrease the native foreign money price of repaying greenback debt, offering reduction to closely indebted international locations like Zambia, Ghana or Pakistan.
Elsewhere, a weaker greenback ought to enhance commodity costs, rising export revenues for international locations exporting oil, metals or agricultural items reminiscent of Indonesia, Nigeria and Chile.
Produce other currencies performed properly?
For the reason that begin of Trump’s second time period in workplace, the dollar’s slide has upended widespread predictions that his commerce struggle would do better injury to economies outdoors the US, whereas additionally spurring US inflation – strengthening the foreign money in opposition to its rivals.
As a substitute, the euro has risen 13 % to above $1.17 as traders proceed to deal with progress dangers contained in the US. On the identical time, demand has risen for different secure belongings like German and French authorities bonds.
For American traders, the weaker greenback has additionally inspired fairness investments overseas. The Stoxx 600 index, a broad measure throughout European shares, has risen roughly 15 % because the begin of 2025.
Transformed again into {dollars}, that acquire quantities to 23 %.
In the meantime, inflation – once more belying predictions – has come down from 3 % in January to 2.3 % in Could.
In response to Junius, there isn’t a vital risk to the greenback’s standing because the world’s de facto reserve foreign money anytime quickly.
However “that doesn’t imply you could’t have extra of a weakening within the US greenback,” he mentioned. “In truth, we proceed to count on that between now and the tip of the yr.”