What Happened to the US Dollar? Why Is It Falling in 2025?
The US dollar is having a rough year—its worst start since 1973. In just the first half of 2025, the dollar has dropped 10.8% against a group of major global currencies like the euro, yen, and British pound. So, what’s behind this historic slide? Let’s break it down in simple terms.
What’s Causing the Dollar to Drop?
The main reason is economic uncertainty tied to President Donald Trump’s latest policies. His trade moves, especially the surprise announcement of global tariffs in April—dubbed “Liberation Day”—shook investor confidence. Stock markets plunged, with over $5 trillion wiped off the S&P 500 in just three days. Government bonds were dumped too, raising borrowing costs for the US.
Although Trump paused most of those tariffs shortly after, except on China, the damage to confidence had already been done.
Unpredictable Policies & Ballooning Debt
Investors are also uneasy about Trump’s massive tax bill—called the “One Big Beautiful Bill Act.” It aims to extend earlier tax cuts, slash healthcare and welfare, and increase borrowing. But experts say this would add $3.3 trillion to the US national debt by 2034, pushing the debt-to-GDP ratio from 124% even higher.
Even with efforts to cut spending via Elon Musk’s “Department of Government Efficiency,” the numbers don’t add up. The government’s deficits are expected to hit 6.9% of GDP, up from 6.4% in 2024.
Why Are Investors Pulling Out?
Trump’s ongoing pressure on the Federal Reserve to cut interest rates has also made the dollar less appealing. Two or three rate cuts are expected by the end of the year. Meanwhile, top credit agency Moody’s downgraded the US government’s credit rating in May—another blow to investor trust.
Globally, confidence in the US as a safe investment haven is fading. Foreign investors currently hold:
- $19 trillion in US stocks
- $7 trillion in US Treasuries
- $5 trillion in corporate bonds
But as one economist put it: “The US is no longer as attractive to investors as it once was.”
What Happens When the Dollar Falls?
A weaker dollar has mixed effects:
- For US exporters: Good news! American products become cheaper overseas.
- For importers: Bad news—foreign goods get pricier for Americans.
- For developing countries: A falling dollar lowers the cost of repaying debt, which helps struggling economies like Zambia, Pakistan, and Ghana.
- For commodity exporters: Countries like Nigeria, Chile, and Indonesia could benefit from rising prices of oil, metals, and food.
Still, due to trade tensions and uncertainty, these typical benefits haven’t fully played out yet.
Are Other Currencies Doing Better?
Yes. While the dollar has weakened:
- The euro is up 13%, now worth over $1.17.
- European stocks (Stoxx 600 index) have surged 15%, and when converted back to dollars, the gain jumps to 23%.
- Investors are favoring German and French bonds over US assets.
And contrary to earlier fears, US inflation has cooled—down from 3% in January to 2.3% in May.
Is the Dollar’s Global Power in Jeopardy?
Not yet. The US dollar still dominates:
- 60% of global bank deposits
- 70% of international bonds
- 57% of the world’s currency reserves
- Over half of global trade is done in dollars
But experts warn that while the dollar is unlikely to lose its top spot soon, it could continue to weaken if current policies persist.
In Summary
The dollar’s steep decline in 2025 is the result of risky economic policies, growing national debt, and shaken investor confidence under Trump’s leadership. While it might boost some exports and help other countries with debt, the bigger picture is one of uncertainty—and a clear signal that global trust in the US economy is being tested.
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