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https://www.morningstar.com/markets/how-low-can-dollar-go

How Low Can the Dollar Go?

After the dollars steepest half-year drop in decades, investors see
continued declines ahead.
Receding confidence in the dollar is driving investors to sell dollars and
buy gold and other major currencies.
The dollar is unlikely to lose its dominance quickly, even as Chinas
central bank boosts the yuan.

The first six months of 2025 marked the worst half-year performance for the dollar since 1991, as mounting doubts about US fiscal strength and
capricious trade policy chipped away at the currencys status as a safe
haven. The sharp decline has raised the question of how much further the
worlds reserve currency might fall with neither the trade war nor US fiscal anxiety resolved.

The US Dollar Index, which measures the value of the greenback against the worlds six most traded currencies, has lost almost 11% of its value during
the first half of 2025. When only comparing first-half periods, the start
to this year marked the worst performance since the 1973 oil crisis and the worst half-year since the second half of 1991.

International investors have become skeptical of the dollar as public debt continues to rise and the White House aggressively pushes for a policy of
easy money. In addition, concepts such as revenge tax or the Mar-a-Lago Agreement make international investors uncomfortable, explains ODDO BHF
Chief Investment Officer Jan Viebig.

Indeed, central banks and private investors have been diversifying into
other currencies and assets, such as the euro and gold. Central banks, particularly in China, have been aggressively buying gold to diversify away from the US dollar, says Morningstar research director Monika Calay, citing
net assets in gold exchange-traded products that have reached $326 billion. This is a clear sign that investors are again turning to gold, driven by
its long-standing reputation as an inflation hedge. Golds 2025 inflows are being fueled by macroeconomic and geopolitical uncertainty, central bank diversification, and investor anxiety around inflation risk, she says.
Will the Dollar Keep Falling?

Hong Cheng, Morningstars head of fixed income and currency research, sees
room for further declines in the value of the dollar against other major currencies. In the near term, we believe the dollar may face continued headwinds due to a moderation in US economic growth and the relative shift toward more growth-supportive fiscal and monetary policies abroad, she
says.

While economic data have remained robust, with a resilient labor market and soft data on activity, we remain cautious on the dollar. In our view, the effective tariff rate on US imports should rise from here, which in
combination with the weaker dollar should drive prices higher and weigh on domestic consumption, explains Claudio Wewel, FX strategist at J. Safra Sarasin.

As US President Donald Trumps criticism of Federal Reserve Chair Jerome
Powell erodes confidence in the Federal Reserves autonomy and as inflation moderates, markets have grown more certain that the Fed will eventually
pivot to rate cuts. Lower interest rates generally weaken a currency. So
far, Trumps policy agenda implies that the Feds rate cut trajectory will be shallow, but increasing growth risks could force the Fed to deliver more
cuts than markets currently price, which should add to the near-term dollar headwinds, says Wewel. Unsustainable fiscal moves and a high level of
policy uncertainty may initiate further financial outflows from the US that would push the dollar lower.

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