‍

Dollar Tumbles to Historic Lows Amid Broadening Global Uncertainty

The U.S. dollar suffered its worst first-half performance in 52 years, falling 10.7% against a basket of global currencies through the end of June. This marks the most significant drop since 1973—when President Richard Nixon dismantled the Bretton Woods system and delinked the dollar from gold.

At its lowest point, the dollar fell to levels not seen since February 2022, raising questions about whether the decline signals a longer-term erosion of confidence in the greenback or a temporary dip amid economic and political uncertainty.

What’s Fueling the Dollar’s Weakness?

Several converging factors are weighing on the dollar:

• Federal Reserve Rate Expectations: Investors are anticipating interest rate cuts by the Fed later this year, which would reduce the yield advantage of holding dollar-denominated assets.
• Ballooning Federal Deficits: The U.S. is projected to run a $2 trillion deficit in 2025, with public debt nearing $30 trillion. This fiscal imbalance is raising concerns about long-term dollar stability.
• Geopolitical and Trade Uncertainty: Policy unpredictability, growing trade tensions, and renewed talk of aggressive tariffs under a potential second Trump administration are further unsettling investors.

Art Hogan, chief market strategist at B. Riley Wealth Management, summed it up: “You’ve got massive deficits, growing isolation in trade and military alliances, and few efforts to contain any of it. Momentum is hard to stop once it starts.”

The dollar’s slide began in mid-January, showed brief signs of life in April on speculation that Trump’s tariffs might not be as severe as expected, but overall the trend has remained downward.

Stock Market and Gold Respond

Interestingly, the dollar’s slump has not dampened stock performance. Over 40% of S&P 500 company revenue comes from overseas, and a weaker dollar typically boosts exports by making U.S. goods more competitive globally.

Meanwhile, gold surged in response. According to the World Gold Council, central banks purchased an average of 24 metric tons of gold per month in the first half of the year—marking the strongest accumulation since 1979. Analysts attribute this trend to an ongoing shift away from dollar-denominated reserves.

“We believe central banks are buying gold to diversify their holdings and hedge against both inflation and economic instability,” said Lawson Winder, a research analyst at Bank of America. “That trend is likely to continue as fiscal and tariff uncertainties mount.”

Investor Strategies Shift: More Shorts, Fewer Greenbacks

TS Lombard is among the firms maintaining a short position on the dollar, referring to it as “the gift that keeps on giving.” Senior strategist Daniel Von Ahlen noted: “With the administration signaling a preference for a weaker dollar and the Fed under pressure, we expect further downside across multiple currency pairs.”

The Federal Reserve’s expected easing could add further drag, although analysts note that in previous easing cycles (such as in 2024), both the dollar and Treasury yields rose, complicating forecasts.

Is the Dollar’s Dominance in Jeopardy?

Not everyone sees the decline as a structural collapse. Some argue that recent weakness is exaggerated and that the dollar remains firmly entrenched at the core of the global financial system.

Jennifer Timmerman, investment strategy analyst at Wells Fargo, argues: “Despite the noise, the dollar remains the linchpin of global trade. Its strengths—rule of law, deep liquidity, transparency—make alternatives unviable in the near term.”

Treasury Secretary Scott Bessent echoed that sentiment on CNBC, calling the recent moves “not out of the ordinary” and cautioning against reading too much into short-term volatility.

Still, rising Treasury yields hint that investor concern hasn’t fully subsided. The market is cautiously weighing long-term risks associated with spiraling debt, global diversification, and shifting trade dynamics.

Outlook: Reversal or More Decline?

Some believe the dollar could find a floor if global confidence in U.S. equity markets holds firm. Thomas Matthews of Capital Economics noted that the recent rally in stocks suggests investors aren’t yet abandoning American assets.

However, as Art Hogan cautions, “Even if we’re oversold, you can still map out a dozen reasons to remain concerned.”

With rate cuts looming, deficits climbing, and geopolitical rhetoric heating up, the second half of 2025 could prove just as volatile as the first. The dollar’s future may hinge not only on Fed policy, but also on how investors worldwide choose to diversify their bets—and where they place their trust.