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The U.S. dollar has fallen more than 10% against other major currencies in the first half of 2025 — its worst performance since 1973, the year President Nixon famously ended the dollar’s link to gold. For many, this sharp drop signals a potential shift in America’s financial strength.

The dollar is often seen as the ultimate symbol of U.S. economic power. So when it stumbles alongside stocks and bonds — as it has recently — investors start to question what’s happening beneath the surface.

A Surprising Decline Amid a Strong Economy

It’s puzzling at first glance. The U.S. economy remains relatively healthy, yet the dollar has lost significant ground. Kaspar Hense, senior portfolio manager at RBC BlueBay Asset Management, puts it this way: “We came from a very strong dollar period when U.S. exceptionalism was the dominant narrative in global markets.”

But now, after nearly 250 years of independence, many wonder if the dollar’s weakness is a sign that America’s financial dominance is waning.

What’s Driving the Dollar Down?

Several factors are shaking investor confidence in the dollar. Political uncertainty and policy shifts under President Trump have unsettled global markets. Tariffs and trade tensions created waves of uncertainty for businesses worldwide. Moreover, Trump’s public clashes with the Federal Reserve — particularly around interest rates — have broken with decades of tradition respecting the central bank’s independence.

Meanwhile, America’s ballooning national debt is causing unease. Recently, Congress passed a massive spending bill, known as the GOP megabill, adding trillions to the deficit. Kenneth Rogoff, former IMF chief economist and Harvard professor, warns that years of inaction on the rising debt are fueling doubts among investors.

“How much longer do investors want to hold dollars, knowing this slow-motion fiscal challenge is looming?” Rogoff asks. He cautions that while the dollar’s fall this year might be temporary, the underlying trend of moving away from the dollar is real — with Trump accelerating the process.

Foreign Investors Are Reacting

Foreign investors have responded by selling U.S. stocks and bonds, which pushes the dollar even lower. When investors dump U.S. assets, they convert their dollars back into their home currencies, creating downward pressure on the greenback.

A Bank of America survey of global fund managers illustrates this trend clearly. For years, most preferred U.S. stocks over international ones. But this year, only 23% favored U.S. equities, reflecting a shift in sentiment.

While the S&P 500 has gained over 6% this year, many foreign markets have outperformed it. Germany’s DAX and Hong Kong’s Hang Seng indexes, for example, have both surged nearly 20% through June 2025.

The Other Side of the Coin: Why the Dollar Still Matters

Not everyone believes the dollar’s slump signals a crisis. Some see it as a natural correction after decades of outperformance. After all, the U.S. dollar remains the world’s most widely held currency — used by governments, multinational corporations, and even criminals.

There’s a well-known market phrase: TINA — “There Is No Alternative.” Despite its recent weakness, the dollar still dominates global trade, finance, and reserves.

A weaker dollar can also bring benefits. It makes American exports more competitive overseas, giving companies like Apple a pricing edge. It encourages domestic tourism by making travel abroad more expensive for Americans and boosts local manufacturers by making imported goods pricier.

Kit Juckes, chief FX strategist at Societe Generale, reminds us, “The strength of a currency isn’t a national strength contest.” A super-strong dollar can hurt U.S. industries like manufacturing and agriculture, so a softer greenback isn’t necessarily bad news.

What Lies Ahead for the Dollar?

The big question: Is the dollar’s decline a temporary blip or a sign of long-term change?

Rogoff believes the U.S. dollar’s dominance is under pressure and likely to evolve into a “tri-polar” currency system over the next couple of decades — with the euro, Chinese yuan, and even cryptocurrencies emerging as significant challengers.

“The dollar’s status as the world’s reserve currency has been eroding slowly for years,” he says, “and that trend is accelerating.”

Ultimately, the dollar’s future will depend on America’s ability to manage its fiscal challenges, maintain investor confidence, and navigate shifting geopolitical realities. For now, the greenback remains powerful, but the landscape is undeniably changing.