US Dollar Declines Over 10%; Economists Caution About Extended Impact
The US dollar has experienced a significant decline, dropping over 10% in the first half of 2025, marking its steepest six-month fall since 1973. This downturn has raised alarms among economists and currency experts, who warn of potential volatility in financial markets. While US stock markets, including the S&P 500 and Nasdaq, have reached record highs, the weakening dollar and rising long-term treasury yields indicate growing investor unease regarding the stability of US financial assets. Analysts attribute this selloff to President Donald Trump’s unpredictable economic policies and diminishing confidence in the Federal Reserve.
Dollar Weakness Raises Red Flags
The recent depreciation of the dollar has prompted global investors to reconsider their reliance on it as a safe haven currency. Joseph Brusuelas, chief economist at RSM US, described the current decline as the beginning of a “multi-year unwinding” of the dollar’s 14-year bull run. Harvard economist Kenneth Rogoff, author of “Our Dollar Your Problem,” noted a rising trend among central banks, particularly in China, to diversify away from the dollar. This shift has been accelerated by the policies of the Trump administration. Rogoff predicts a period of heightened financial volatility, largely driven by instability in the United States, including threats to central bank independence and the rise of populism.
Trump’s Actions Add to Uncertainty
The Trump administration has contributed to market volatility with mixed signals regarding monetary and trade policies. President Trump has publicly criticized Federal Reserve Chair Jerome Powell, demanding lower interest rates and labeling Powell as “a stupid person.” Although Treasury Secretary Scott Bessent has denied any intention to weaken the dollar, analysts suggest that the current trend aligns with the administration’s strategy to boost manufacturing and onshoring. Jason Schenker of Prestige Economics noted that lower interest rates and a weaker dollar could enhance US economic self-sufficiency.
In April, Trump reversed newly announced tariffs after a spike in Treasury yields led to a stock market dip. He later stated that he had no plans to remove Powell, retracting earlier threats. Despite the dollar’s decline, US equities have remained robust, but experts caution that this situation could change rapidly.
Global Implications of the Dollar’s Decline
The dollar’s significant drop has broader implications for global markets. As the dollar weakens, currencies like the euro have gained strength, with the euro rising over 13% this year, bolstered by Germany’s fiscal spending and the European Central Bank’s rate cuts. This shift may lead to a reevaluation of currency strategies among investors and central banks worldwide.
Economists warn that the ongoing volatility could disrupt international trade and investment flows. The potential for increased financial instability may prompt countries to seek alternatives to the dollar, further complicating the global economic landscape. As the situation evolves, market participants will be closely monitoring the Federal Reserve’s actions and the Trump administration’s economic policies to gauge their impact on the dollar and the broader financial markets.
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