In 2025, the US dollar experienced its steepest annual drop in eight years. Even though some officials from the Trump administration maintain a commitment to a “strong dollar,” investors seem to have their doubts.
Despite some recent improvements, the dollar index (DX-Y.NYB) has declined roughly 1% since the year’s start, and it’s projected to be down by 9% for the entire 2025.
Goldman Sachs’ foreign exchange strategists have noted that the current policy uncertainties seem likely to continue, hindering any potential recovery for the dollar.
“Investors kicked off the year with elevated expectations. But while the business cycle offered some support, the looming threat of new tariffs dampened those hopes,” they commented.
Following President Trump’s announcement of tariffs on Liberation Day last April, the US dollar—previously a stronghold of the global economy—dipped over 5%. Nearly a year later, it hasn’t bounced back from those losses.
For many years, the dollar has held the title of the world’s reserve currency, often termed an “exorbitant privilege.” This status allowed it, and assets tied to it, to act as a safe haven amidst market turmoil.
Thierry Wizman, a strategist at Macquarie Bank, pointed out that if the dollar’s reserve currency status hinges on the US maintaining a stable security and rules-based order, the past year’s events suggest a possible shift away from the dollar toward alternative currencies.
Markets are also evaluating how potential changes in US monetary policy under President Trump’s successors, Federal Reserve Chairman Jerome Powell and former Fed Director Kevin Warsh, might impact the dollar.
Warsh, who is known for his hawkish stance, saw only a temporary boost in the dollar as investors adjusted to the possibility of aggressive rate cuts from his Fed during his initial term back in the 2008 financial crisis.
Trump remarked in a recent NBC News interview that he wouldn’t have supported Warsh for the Fed chair position had Warsh shown any interest in increasing rates.
“If he had come in and said, ‘I want to raise interest rates,’ … he wouldn’t have taken the job, no,” Trump noted on February 4, adding that he believes there’s “not much” uncertainty that the Fed will lower rates due to “our interest being very high.”
Even though the dollar is still a central component of the global financial landscape, growing geopolitical risks and policy uncertainties are prompting traders to seek refuge in other currencies, such as the euro, Swiss franc, or even gold. This shift has often been driven by uncertainties stemming from the US government itself.
As for the medium to long term, Macquarie’s Wizman mentioned that the “diversification trade” away from the USD is likely not over, indicating that worries about US policy could loom for years to come.
“The U.S. dollar cannot maintain its position as a reserve currency indefinitely given the current contrasts being drawn between the U.S. and the rest of the world,” he remarked.
Gold has experienced one of the most significant bull markets in recent history, rising over 60% through 2025. Even with a recent pullback, it remains more than 70% up in the past year.
Other commodities, including silver, platinum, copper, and steel, are anticipated to keep rising along with gold into early 2026.
One analyst from Saxo Bank stated that “the US dollar is the main driver of new demand for hard assets.” He added that fears of instability in the U.S. and rising capital flows to alternative markets are further weakening conditions for the dollar.
Other major currencies like the euro, pound, and Swiss franc have also seen gains against the dollar recently, resulting in increased interest in emerging market currencies, which often trade at lower values compared to the dollar.
Bank of America’s economists cautioned that labeling these movements as evidence of a weaker dollar would be premature. They noted that an actual downturn would show prolonged declines in the dollar alongside US asset valuations.
However, current shifts seem to indicate a broader structural change in investor sentiment. BofA also emphasized that factors contributing to the dollar’s weakness, such as dovish policies from the Fed and trade conflicts, are not fully reflected yet.
“Currently, there’s really no suitable alternative to the dollar as a global currency—not even the euro or renminbi,” remarked Stephen Kamin, a former Federal Reserve finance head, highlighting that the U.S. possesses the most liquid and accessible capital markets worldwide.
“But it’s becoming more conceivable to envision a future where the dollar doesn’t dominate as it has,” he concluded.
