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The US greenback has suffered its worst first half of the 12 months since 1973, as Donald Trump’s commerce and financial insurance policies immediate international buyers to rethink their publicity to the world’s dominant forex.
The greenback index, which measures the forex’s energy in opposition to a basket of six others together with the pound, euro and yen, has slumped greater than 10 per cent up to now in 2025, the worst begin to the 12 months because the finish of the gold-backed Bretton Woods system.
“The greenback has grow to be the whipping boy of Trump 2.0’s erratic insurance policies,” mentioned Francesco Pesole, an FX strategist at ING.
The president’s stop-start tariff struggle, the US’s huge borrowing wants and worries concerning the independence of the Federal Reserve had undermined the enchantment of the greenback as a secure haven for buyers, he added.
The forex was down 0.2 per cent on Monday because the US Senate ready to start voting on amendments to Trump’s “huge, lovely” tax invoice.
The landmark laws is anticipated so as to add $3.2tn to the US debt pile over the approaching decade and has fuelled issues over the sustainability of Washington’s borrowings, sparking an exodus from the US Treasury market.
The greenback’s sharp decline places it on the right track for its worst first half of the 12 months since a 15 per cent loss in 1973 and the weakest exhibiting over any six-month interval since 2009.
The forex’s slide has confounded widespread predictions in the beginning of the 12 months that Trump’s commerce struggle would do larger harm to economies exterior the US whereas fuelling American inflation, strengthening the forex in opposition to its rivals.
As a substitute, the euro, which a number of Wall Avenue banks had been predicting would fall to parity with the greenback this 12 months, has risen 13 per cent to above $1.17 as buyers have targeted on development dangers on the planet’s greatest economic system — whereas demand has risen for secure property elsewhere, reminiscent of German bonds.
“You had a shock when it comes to liberation day, when it comes to the US coverage framework,” mentioned Andrew Balls, chief funding officer for international fastened earnings at bond group Pimco, referring to Trump’s “reciprocal tariffs” announcement in April.
There was no vital menace to the greenback’s standing because the world’s de facto reserve forex, Balls argued. However that “doesn’t imply which you can’t have a big weakening within the US greenback”, he added, highlighting a shift amongst international buyers to hedge extra of their greenback publicity, exercise which itself drives the dollar decrease.
Additionally pushing the greenback decrease this 12 months have been rising expectations that the Fed will lower charges extra aggressively to help the US economic system — urged on by Trump — with at the least 5 quarter-point cuts anticipated by the tip of subsequent 12 months, in keeping with ranges implied by futures contracts.
Bets on decrease charges have helped US shares to shake off commerce struggle issues and battle within the Center East to achieve file highs. However the weaker greenback means the S&P 500 continues to lag far behind rivals in Europe when the returns are measured in the identical forex.
Huge buyers from pension funds to central financial institution reserve managers have said their need to cut back their publicity to the greenback and US property, and questioned whether or not the forex remains to be offering a haven from market swings.
“Overseas buyers are requiring larger FX hedging for dollar-denominated property, and that has been one other issue stopping the greenback from following the US fairness rebound,” mentioned ING’s Pesole.
Gold has additionally hit file highs this 12 months on continued shopping for by central banks and different buyers anxious about devaluation of their greenback property.
The greenback stoop has taken it to its weakest degree in opposition to rival currencies in additional than three years. Given the velocity of the decline, and the recognition of bearish greenback bets, some analysts count on the forex to stabilise.
“A weaker greenback has grow to be a crowded commerce and I think the tempo of decline will sluggish.” mentioned Man Miller, chief market strategist at insurance coverage group Zurich.