The US dollar is enduring its worst half-year performance since 1973, when the collapse of the Bretton Woods system, an OPEC oil embargo, and the Watergate scandal triggered significant devaluation. This six-month slide also marks the currency’s weakest showing since the 2009 post-financial crisis recovery.
The dollar index, which measures the dollar’s value against a basket of six major currencies, including the Euro, Japanese Yen, and Swiss Franc, has plummeted over 10%. This sharp decline reflects growing unease among investors about the US economy’s trajectory.
Several factors are driving this downturn, including President Trump’s tariff policies, concerns over escalating US debt, and the Federal Reserve’s independence in setting interest rates and managing monetary policy. These issues have eroded confidence in the dollar’s stability.
On Monday, the dollar fell an additional 0.2% as the Senate prepared to vote on Trump’s “Big Beautiful Bill,” a legislative package expected to add $3.2 trillion to US debt. Concerns about the sustainability of US borrowing have intensified. Prominent figures like Elon Musk have criticized the bill, with Musk promising to back the midterm re-elections of Representative Thomas Massie and others opposing the legislation.
The bill’s likely passage has sparked a sell-off in the US Treasury market. The 10-year Treasury note yield dropped to 4.23% as of July 1, 2025, well below the 5-10% seen in robust bond market years. This decline signals investor caution amid rising debt levels.
Speculation that the Federal Reserve may cut interest rates to bolster the economy, coupled with rumors of a more dovish successor to Chair Jerome Powell when his term ends in May 2026, has further pressured the dollar.
Initially, the “Trump effect” following his Liberation Day announcement boosted the dollar against other major currencies. Analysts had predicted that Trump’s trade policies would weaken foreign economies, fuel US inflation, and strengthen the dollar, but these forecasts have not materialized.
Contrary to Wall Street predictions of the Euro reaching parity with the dollar, the Euro has surged 13 cents to above $1.17, driven by demand for German bonds. This shift indicates investors are hedging against greenback exposure.
Pension funds and central banks are also reducing their US asset holdings, no longer viewing them as a safe haven from market volatility. This repositioning reflects broader concerns about the US economy’s stability.
Gold prices have soared to record highs as investors and central banks increase their holdings of the precious metal. This flight to gold underscores the search for alternative safe assets amid dollar weakness.
Analysts suggest the dollar’s rapid decline and widespread bearish betting may lead to stabilization in the near term. However, the speed of the drop has raised questions about its longevity.
The full impact of Trump’s “Big Beautiful Bill” and ongoing tariff negotiations remains uncertain. With a volatile bond market, investors are clearly signaling a pessimistic outlook for the dollar’s near-term prospects.
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