Why the US dollar is on a rocky path in 2025

The dollar is off to its worst start to a year in more than half a century.

- Joe Rennison

The US currency has weakened more than 10 per cent over the past six months when compared with a basket of currencies from the country's major trading partners. The last time the dollar weakened so much at the start of the year was in 1973, after the United States made a seismic shift that ended linking the currency to the price of gold.

This time, the seismic event is President Donald Trump's efforts to remake the world order with an aggressive tariff push and a more isolationist foreign policy.

The combination of Mr Trump's trade proposals, inflation worries and rising government debt has weighed on the dollar, which has also been buffeted by slowly sliding confidence in the role of the US at the centre of the global financial system.

That means it is more expensive for Americans to travel abroad and less attractive for foreigners to invest in the US, sapping demand when the government is trying to borrow more money. On the flip side, the weaker dollar should help US exporters and make imports more expensive, though these typical trade effects are in flux because of tariff threats.

Even as Mr Trump has backed down from his most extreme tariffs, and US stock and bond markets have recovered from their losses earlier in the year, the dollar has continued to slide.

"Having a weak dollar or a strong dollar isn't the issue," said Mr Steve Englander, global head of G10 foreign exchange research at Standard Chartered. "The issue is: What is it telling you about how the world sees your policies?"