【By Observer News, Xiong Chaoran】"The dollar has had its worst start in more than half a century (since 1973)." Halfway through 2025, the New York Times reported on June 30 local time that over the past six months, the dollar has depreciated by more than 10% against a basket of currencies of the US's major trading partners. The last time the dollar experienced such a significant depreciation at the beginning of the year was in 1973, when the US underwent a major change, ending the link between the dollar and the price of gold.
The report bluntly points out that this major change is due to Trump's aggressive tariff policies and more isolationist foreign policy, which have reshaped the world order. Trump's trade policies, concerns about inflation, and the increase in the US government's debt have all put pressure on the dollar. A slow decline in confidence in the US's central position in the global financial system is also impacting the dollar.
Although Trump has abandoned his most extreme tariff ideas, and the US stock and bond markets have recovered some of their strength from earlier losses this year, the dollar continues to fall. This means higher costs for Americans traveling abroad, reduced attractiveness for foreigners investing in the US, thus weakening demand when the government tries to borrow more funds. On the other hand, a weaker dollar should benefit US exporters and raise import costs, but these typical trade effects are constantly changing due to tariff threats.
Percentage change in the dollar index in the first half of each year since 1986, with the red line indicating 2025. The New York Times map
"Whether the dollar is weak or strong isn't the issue," said Steve Englander, global head of G-10 foreign exchange research at Standard Chartered: "The issue is: What does this tell you about how the world views your policies?"
Initially, the dollar surged after Trump's re-election, much like stock market investors, who saw Trump as supportive of economic growth and pro-business, which could attract investment from around the world, boosting demand for the dollar.
However, this enthusiasm did not last long. After peaking in mid-January, the dollar index began to decline. Market expectations of Trump's so-called pro-business government gradually gave way to persistent worries—concerns about stubborn inflationary pressures and the impact of already high interest rates on the economy and stock market companies.
Subsequently, Trump unexpectedly announced tariffs far higher than what any economist, investor, or analyst had predicted, causing panic across the entire market, from stocks to bonds to the dollar.
Investors worried that the inflationary impact of tariffs could keep interest rates at high levels for longer, which would be a blow to the US economy, which was already showing signs of weakness.
With Trump's initial tariff policies, the anxiety about the economy turned into concern about the safety of American assets. Initially, it was anxiety about inflation and the labor market, but now it has become more intense focus on the potential huge impact of Trump's tariffs on the entire financial system.
Analysts worry that there is a large-scale shift away from the dollar and American assets, a sharp contrast to the recent trend of capital flowing into American assets and dominating the investment landscape. Englander is concerned that the once exceptional United States is falling into the pack.
The New York Times reports that higher tariffs are likely to mean fewer imports, and fewer imports mean less money paid to foreign companies. In turn, this may reduce the dollars returning to the US, such as the government bond market, because of the convenience of avoiding currency conversion and investors' confidence in the US market.
The recent impact of the dollar's decline is profound. The last time the dollar experienced such a significant drop at the beginning of the year was in 1973, when foreign currencies no longer tied to the dollar. This change occurred two years after then-US President Nixon decided to no longer tie gold to the dollar.
For some investors, the weakness of the dollar this year has eroded the returns of the bull market in US stocks. The S&P 500 index hit a new high last week, rising 24% since the Trump administration withdrew most of its initial tariff plans. However, if the dollar gains of the S&P 500 are converted into euros, the gain shrinks to 15%, still 10% below the historical high.
The decline in demand for US assets caused by the tariff policy conflicts with the Trump administration's plan to increase spending, leading to the disappointment of some fiscal hawk figures regarding whether Trump will fulfill his campaign promise to reduce government spending. Although facing opposition in the Senate, a domestic spending bill is still moving forward in Congress. It is estimated that the bill will add tens of billions of dollars to the fiscal deficit over the next decade.
The Trump administration plans to bridge this gap by borrowing more funds from investors in the Treasury market, but this is precisely the moment when these investors are starting to withdraw, raising concerns about market stability, which undermines the role of US Treasury bonds and the dollar as a "safe haven" during times of economic tension.
Typically, when investors feel concerned, they look for assets they believe will retain value. In the current volatile trading environment, concerns about the dollar further weaken it, indicating that the dollar is currently failing to maintain its traditional safe-haven role.
Rick Rieder, Chief Investment Officer of BlackRock's Global Fixed Income Division, stated in his latest quarter's outlook report: "Even if full de-dollarization does arrive, it still has a long way to go. But one trend might significantly increase this risk—rising government debt."
On June 30 local time, Chuck Schumer, the Senate Minority Leader, speaks with reporters at the US Capitol. The US Senate began voting on Trump's flagship spending bill on that day. The highly controversial bill is expected to cut social programs for the poor and increase the national debt by $3 trillion, and it is now in the final sprint. Visual China
Amid global trade fragmentation and geopolitical turbulence, the dominance of the dollar is gradually weakening, with central banks turning to gold, the euro, and the yuan.
According to a report released by the Official Monetary and Financial Institutions Forum (OMFIF) on June 24 local time, after excluding central banks planning to reduce their holdings, one-third of central banks managing a total of $5 trillion in assets plan to increase their gold holdings within the next one to two years, reaching the highest level in at least five years.
This survey of 75 central banks was conducted from March to May and revealed for the first time the impact of President Trump's April 2 "Liberation Day" tariffs—the policy triggered market turmoil and led to a decline in safe-haven assets such as the dollar and US Treasury bonds.
Central banks have been increasing their gold holdings at an unprecedented rate, with 40% of them planning to increase their gold reserves in the next decade. "After years of setting new records for central bank gold purchases, reserve managers are doubling down on this precious metal."
OMFIF said that the dollar, which was the most popular currency among central banks last year, has fallen to seventh place this year. As many as 70% of the surveyed central banks said the US political environment hinders their investment in the dollar. In terms of currency, the euro and the yuan benefited the most from central banks reducing their holdings of dollars and shifting toward diversified allocations.
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