The US dollar has experienced its worst first-half performance since 1973, and investors are expecting further declines ahead. The decline is driven by receding confidence in the dollar, as investors sell dollars and buy gold and other major currencies.
The US Dollar Index has lost almost 11% of its value during the first half of 2025, making it the worst start to a year since the 1973 oil crisis. International investors are becoming skeptical of the dollar due to rising public debt and trade policy uncertainty.
Central banks and private investors are diversifying into other currencies and assets, such as the euro and gold. China’s central bank has been aggressively buying gold, with net assets in gold exchange-traded products reaching $326 billion.
Analysts predict that the dollar may face continued headwinds due to moderation in US economic growth and relative shifts towards more growth-supportive fiscal and monetary policies abroad. The effective tariff rate on US imports is expected to rise from here, driving prices higher and weighing on domestic consumption.
The euro has been one of the strongest currencies in the first half of 2025, with analysts predicting it may reach levels close to 1.20 against the dollar by the end of 2025. The British pound is also expected to edge higher, driven by ongoing USD weakness.
In contrast, the Japanese yen’s appreciation has stalled, and its value is likely to remain volatile until a US-Japan trade deal is agreed upon. China’s yuan is also expected to strengthen, with analysts predicting it may reach levels of 7.15 against the dollar by mid-2026.
While some analysts predict that the dollar’s dominance as a global reserve currency may be challenged, they caution that any meaningful impact will unfold over a multiyear horizon.
Source: https://www.morningstar.com/markets/how-low-can-dollar-go