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US Dollar Plummets 11% in 2025 Amid Policy Uncertainty
https://www.ainvest.com/news/dollar-plummets-11-2025-policy-uncertainty-
2507/
The US dollar has experienced a significant decline, falling more than 10%
in the first half of 2025. This drop is the steepest since the collapse of Bretton Woods in 1973 and is attributed to a combination of erratic fiscal policy, rising debt, and institutional uncertainty. The US dollar index,
which measures the greenback against six major currencies, has decreased by almost 11% during this period. This decline is not due to external factors
such as an oil shock or a currency crisis abroad, but rather to internal
issues within the US economy.
The decline began with the announcement of aggressive tariffs on imports
from major trading partners on April 2, 2025. This move, dubbed "Liberation Day" by President Donald Trump, led to an immediate fallout in US markets, which lost $5 trillion in value within three days. Treasuries saw a wave of selloffs, and confidence in the predictability of US policy broke down. A 90-day pause on tariffs was announced a week later, but the damage had
already been done, signaling a phase of self-inflicted volatility for the world's largest economy. The uncertainty surrounding US policy has raised concerns about the stability of the US dollar as a safe haven.
Adding to the concerns is the "One Big Beautiful Bill" moving through
Congress, which, if passed, would extend Trump's original tax cuts, dramatically reduce welfare spending, and increase borrowing. This could
add $3.3 trillion to the US debt by 2034, raising the debt-to-GDP ratio
from 124% to well above 130%. Moody's responded by stripping the United
States of its last AAA credit rating in May, which was a wake-up call for investors. US Treasuries, once considered the global anchor asset, are now being questioned, and foreign ownership of US government bonds is starting
to thin out. Reserve managers are no longer treating US debt as risk-free,
and the independence of the Federal Reserve is also under scrutiny. Trump
has publicly called for aggressive rate cuts to offset his tariff-driven
growth slowdown, putting the Fed in a bind. If it cuts rates to support
growth, it weakens the dollar further. If it holds steady, financial
conditions tighten into a trade and debt storm. Either way, the dollar
loses its appeal. Inflation is also creeping in, with import prices rising
and the cost of capital increasing.
In past crises, money rushed into the dollar. This time, its flowing out. Foreigners own $19 trillion in US equities, $7 trillion in Treasuries, and
$5 trillion in corporate bonds, which is a massive exposure to dollar-
linked assets. The data tells the story. Rotation out of the US is accelerating. European equities, measured by the Stoxx 600 index, are up
15% year-to-date. In dollar terms, thats a 23% gain. German and French
bonds are seeing strong inflows as investors search for policy stability.
Gold has also surged to record highs, driven largely by central banks diversifying out of dollar reserves. The dollar still accounts for 57% of global foreign currency reserves, but reserve data lags. Whats happening
now is behavioral. Countries arent dumping dollars. Theyre hedging against them.
The euro is up 13% this year, surprising analysts who had forecast parity. Rather than collapsing under weak EU growth, it has benefited from
comparative calm. For emerging markets, the weaker dollar is good news, at least for now. Countries like Ghana, Zambia, and Pakistan carry large
amounts of dollar-denominated debt. A falling dollar makes their debt
burden more manageable. Commodity-exporting nations are also benefiting.
Oil, metals, and agricultural goods priced in dollars become more valuable
when the dollar falls. For exporters like Indonesia, Nigeria, and Chile,
the dollars weakness is a revenue boost. One underreported consequence of
this volatility is playing out in Europes corporate treasury departments.
Daily volumes of currency options hit a record in April. Corporate FX
option sales have doubled year-over-year.
This isnt just about trade. Its about trust. The dollar remains the global reserve currency. But its premium is eroding. Not because another currency
is ready to take its place, but because investors no longer see the US as
the stabilizing force it once was. In previous cycles, the US outperformed because it was transparent, institutionally consistent, and fiscally disciplined. In 2025, all three pillars are shaking. Foreign capital is no longer automatic. Dollar bonds are no longer neutral. And US equity outperformance isnt guaranteed when measured in other currencies. Investors need a new playbook. The dollar is still central to global finance. But
that role is being hedged. Not just in central banks, but in private
portfolios and corporate balance sheets. This means more than just FX risk.
It means repricing everything tied to US stability. From sovereign debt premiums to venture funding cycles to M&A timelines. And yes, it means gold
is back in the conversation. Not as a bet on inflation, but as a hedge
against institutional fragility. Moreover, stablecoins are entering the
frame with favorable policies. Perhaps this is not a coincidence. 2025 may
be remembered not just as the year the dollar dropped, but as the moment it stopped being the default. The safe haven has become a variable.
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