Worrying signs for the US dollar | Brookings
The U.S. dollar, long seen as a symbol of America’s financial strength, has taken a major hit. In the first half of 2025, it dropped over 10% against other major global currencies—its worst start to a year since 1973. That year marked a historic moment when President Nixon ended the dollar’s link to gold.
Now, despite a relatively strong U.S. economy, the dollar is tumbling—and it’s raising eyebrows worldwide.
So, What’s Going On?
For decades, the dollar was rock-solid. Investors trusted it. It was the currency of choice for everything from international trade to global investments. But now, many are starting to rethink that trust.
A few key factors are driving the drop:
- Trump’s unpredictable economic policies: New tariffs, public spats with the Federal Reserve, and interference in interest rate decisions have made investors nervous.
- Rising U.S. debt: The recently passed GOP “One Big Beautiful Bill Act” adds trillions more to the national debt, just as fiscal concerns grow.
- Global uncertainty: Political divisions in the U.S. and a less stable policy environment are shaking global confidence in the dollar.
“America was already great,” says Kaspar Hense, a senior portfolio manager. “But we’re coming from an extremely strong dollar level, and now the tide is turning.”
Are Investors Losing Faith?
Possibly. Global fund managers—once heavily focused on U.S. stocks—are now looking elsewhere. A Bank of America survey found that only 23% still prefer U.S. stocks, down significantly from past years.
That shift is already showing in the markets:
- Germany’s DAX and Hong Kong’s Hang Seng are up nearly 20% this year.
- The S&P 500, while recovering, is only up about 6%.
Kenneth Rogoff, a Harvard economist and former IMF chief, says the dollar’s decline is part of a bigger trend: a slow move away from relying so heavily on the U.S. dollar. “Trump has been an accelerant,” he says. “Investors are starting to question whether the dollar is still the safest bet.”
But It’s Not All Doom and Gloom
Some experts say this dip is just a natural correction. The U.S. has outperformed global markets for years, and now, other economies are simply catching up.
And remember the term TINA—There Is No Alternative. The dollar is still the most widely used currency in the world. No other currency has the same level of trust, liquidity, or global reach—at least not yet.
There are even some upsides to a weaker dollar:
- American-made goods become more competitive abroad.
- U.S. tourism gets a boost as foreign travelers get more bang for their buck.
- Companies like Apple that earn globally could see increased profits when those foreign earnings are converted back to dollars.
Kit Juckes, a top strategist at Societe Generale, puts it bluntly: “A strong currency isn’t a badge of national pride. It’s just part of the economic cycle.”
Could Other Currencies Take the Dollar’s Place?
Over time, maybe. Experts like Rogoff believe we could see a “tri-polar” system emerge—where the euro, Chinese yuan, and even cryptocurrencies play a bigger role globally.
That doesn’t mean the dollar is disappearing anytime soon. But its grip on the global financial system may slowly loosen.
Rogoff sums it up: “The dollar franchise isn’t gone, but it’s weakening. And that process is accelerating under Trump.”
Bottom Line
The U.S. dollar is under pressure—and it’s more than just a temporary dip. Investors are rethinking America’s role in the global economy, especially with rising debt and political turbulence. While the dollar is still the world’s most dominant currency, cracks are starting to show. Whether this is a short-term slump or the beginning of a long-term shift remains to be seen.
#USDollar #GlobalEconomy #Trump2025 #StockMarketShift #FinancialNews