The dollar just clocked its worst first-half slump since 1973, crashing more than 10% in the first six months of 2025.
The damage? Pinned on President Donald Trump’s return to chaotic trade policies, reckless fiscal choices, and direct pressure on the Federal Reserve.
According to the Financial Times, investors around the world are dumping the dollar, questioning whether it still deserves the role of safe haven in a global economy full of better options.
The ICE dollar index, which tracks the greenback against six major currencies, including the euro and yen, has plummeted harder than in any other first half since the collapse of the Bretton Woods system. Back then, gold backed everything. Now, under Trump 2.0, volatility and debt do.
Traders pull out as Trump’s tax plan adds $3.2tn to US debt
On Monday, as the Senate began reviewing amendments to Trump’s heavily marketed “big, beautiful” tax legislation, the dollar dropped another 0.2%. The bill, projected to stack an additional $3.2 trillion to the national debt over the next decade, has triggered serious doubts about Washington’s ability to fund itself. That fear has sent investors fleeing the US Treasury market, once the world’s safest harbor.
Francesco Pesole, a foreign exchange strategist at ING, didn’t sugarcoat it. “The dollar has become the whipping boy of Trump 2.0’s erratic policies,” he said. He pointed to the back-and-forth tariff wars, massive government borrowing, and questions about the Federal Reserve’s independence as reasons the greenback is bleeding out. Trump’s approach, which changes by the week, has made investors rethink their bets.
None of this was supposed to happen. At the start of 2025, analysts predicted Trump’s aggressive trade stance would hurt other countries more than the US. They thought inflation would rise, the Fed would respond, and the dollar would get stronger. Wrong. The euro, which top Wall Street banks expected to hit parity with the dollar, is now up 13%, climbing above $1.17.
Andrew Balls, chief investment officer for global fixed income at Pimco, said Trump’s surprise “reciprocal tariffs” announcement in April flipped the entire US policy outlook. “You had a shock in terms of liberation day,” he said.
While Andrew still believes the dollar isn’t losing its global reserve status anytime soon, he admitted the current wave of selling is real. “That doesn’t mean that you can’t have a significant weakening in the US dollar,” he added. One reason? Investors around the world are now hedging more of their exposure, selling the greenback to do it.
Fed rate cuts and hedging pressure keep the dollar under
Expectations for aggressive rate cuts are also dragging the dollar down. Markets are now pricing in at least five quarter-point cuts by the end of 2026. That’s not happening in a vacuum. Trump has been loudly pushing the Fed to act, and Wall Street believes he’ll get what he wants. Stocks might be hitting highs, but once you adjust for currency, the S&P 500 is still underperforming European counterparts.
Foreign asset managers, from pension funds to central banks, aren’t hiding their frustration. They’ve been vocal about scaling back their dollar holdings. Some even question whether US assets still offer protection when global markets get shaky. Pesole noted that foreign investors now demand extra hedging just to stay in dollar-denominated positions. That added cost is pushing even more people to move out.
Meanwhile, gold has broken records. With fears growing over the value of the dollar, central banks and individual investors have ramped up buying. They’d rather hold something solid than watch the dollar keep losing value. That’s music to crypto traders, too. With the dollar sliding, alternative assets priced in it—like Bitcoin—look even more attractive.
Right now, the dollar is sitting at its weakest level against rival currencies in over three years. And while some think the worst might be over, no one’s celebrating. Guy Miller, chief market strategist at Zurich Insurance, gave the only calm take in the room: “A weaker dollar has become a crowded trade, and I suspect the pace of decline will slow.” That’s not a forecast of recovery. Just a slowdown in the beating.
