Dollar Hits 3-Year Low as Investors’ Confidence Withers

The U.S. dollar has slumped 10.3% in the first half of 2025, its worst first-half performance since the early 1970s, as reported by the Dollar Index, which measures the currency against major counterparts like the euro and yen. The WSJ Dollar Index also fell 8%, marking its steepest decline since 2002, reflecting a significant loss of confidence in the greenback.

The dollar’s decline is driven by uncertainty over President Donald Trump’s trade policies, including a proposed 25% tariff on Japanese cars and 24% on other imports, which are currently paused. A proposed $5 trillion debt ceiling increase has intensified fiscal concerns, with U.S. public debt exceeding $36.2 trillion, 120% of GDP. Markets expect at least five quarter-point Federal Reserve rate cuts by 2026, fueled by Trump’s push for lower rates and a weakening U.S. labor market.

The dollar’s weakness has strengthened other currencies. The euro surged 13.8% to a near four-year high of $1.179, while the Japanese yen gained 9%, its best performance since 2016. Investors are pivoting to euro-denominated assets and gold, which soared 25% amid fears of U.S. fiscal instability. The dollar’s 2025 performance echoes a 14.8% drop in 1973, highlighting its vulnerability. 

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Analysts attribute the slide to trade disruptions and fiscal pressures, warning that continued uncertainty could deepen the dollar’s decline. As global markets grapple with these shifts, the U.S. faces challenges in maintaining the dollar’s status as a safe-haven currency, which once dominated global trade, with investors closely monitoring economic indicators for signs of recovery or further erosion.