Why does the US dollar fall through record levels in 2025? | Debt news

The United States dollar has experienced its worst first months of the year since 1973, as President Donald Trump’s economic policies have prompted global investors to sell their assets in the background, threatening the status of “sure security” of money.

The dollar index, which measures the strength of the currency against a basket of six others, including the book, the euro and the yen, dropped by 10.8% in the first half of 2025.

President Trump Starting price warand his attacks that have led to concerns about the Independence of the federal reservehave undergone the call of the dollar as a safe bet. Economists are also concerned about the “big and beautiful” Trump tax bill, currently under debate at the US Congress.

Historical legislation is expected to add billions of dollars to the heap of American debt over the next decade and has raised concerns about the sustainability of Washington’s borrowing, which prompted an exodus on the US Treasury market.

Meanwhile, Gold has reached record heights this year, on the continuation of purchases by central banks worried about the devaluation of their dollar assets.

What happened to the dollar?

On April 2, the Trump administration unveiled prices on imports from most countries of the world sale In the United States, financial assets.

More than 5 billions of dollars were erased from the value of the Benchmark S&P 500 actions index within three days of the “Liberation Day”, while Trump described the day of his pricing announcement. US Treasury bills have also seen clearlyLowering their price and sending debt costs to the US government, which are highly higher.

Faced with a revolt on the financial markets, Trump announced a 90 -day break on prices, with the exception of exports of ChinaApril 9. While trade tensions with China – the second world economy – have since attenuatedInvestors are wary of holding assets linked to a dollar.

Last month, the Organization for Economic Cooperation and Development (OECD) announced that it had reduced its American growth prospects for this year by 2.2% in March to only 1.6%, even if inflation has slowed down.

For the future, Republican leaders are trying to pass through A great act of bill by congress before July 4. The bill would extend 2017 tax discountsSlash health and social expenditure and increase loans.

While some legislators believe that he could take until August to adopt the bill, the objective would be to increase the borrowing limit to the debt battery by 36.2 billions of dollars in the country. The non -partisan congress budget office said that it would increase the federal debt by 3.3 billions of dollars by 2034.

This would considerably increase the GDP debt ratio (gross domestic product) by 124% today, which has concerns about the long -term sustainability of debt. Meanwhile, annual deficits – when state expenditure exceeds tax revenue – would increase to 6.9% of GDP, compared to around 6.4% in 2024.

Until now, Trump’s attempts to reduce expenses by the Elon Musk Government Department fallen below expectations. And although import prices have increased government revenues, they have been paid – in the form of higher costs – by American consumers.

The result is that Trump’s unpredictable policies, which prompted Moody’s rating agency Depower the US government from its best credit point In May, American growth prospects have slowed down this year and broke the demand for its currency.

The dollar has also succeeded in reducing expectations that the Federal Reserve will reduce interest rates to support the economy of the United States, invited by Trump, with two to three reductions expected by the end of this year, according to levels implicit by term contracts.

Do the United States become a “less attractive” destination?

Due to its domination in trade and finance, the dollar has been the anchor of global currency. In the 1980s, for example, many Gulf countries began to fix their currencies in the greenback.

His influence does not stop there. Although the United States represents a quarter of world GDP, 54% of world exports were denominated in dollars in 2023, according to the Atlantic Council.

His domination in finance is even greater. About 60% of all bank deposits are labeled in dollars, while almost 70% of international bonds are cited in the American currency.

Meanwhile, 57% of foreign currency reserves in the world – assets held by central banks – are held in dollars, according to the IMF.

But the dollar reserve status is supported by confidence in the American economy, its financial markets and its legal system.

And Trump changes that. Karsten Junius, chief economist of the J Safra Sarasin bank, says that “investors are starting to realize that they are too exposed to American assets”.

Indeed, foreigners have 19 billions of dollars of American shares, 7 billions of dollars of US treasury bills and 5 billions of dollars in US companies’ obligations, according to Apollo Asset Management.

If investors continue to reduce their positions, the value of the dollar could continue to undergo sustained pressure.

“The United States has become a less attractive place to invest these days … American assets are not as safe as before,” Junius told Al Jazeera.

What are the consequences of a low value dollar?

Many within the Trump administration argue that the costs of the US dollar reserve status prevail in the advantages – as this increases the cost of American exports.

Stephen Miran, president of the Trump’s economic adviser council, said that high -place assessments place “excessive burdens on our businesses and workers, which makes their products and their non -competitive work on the world stage”.

“The overvaluation of the dollar has been a factor contributing to the loss of competitiveness of the United States over the years, and … prices are a reaction to this unpleasant reality,” he added.

At first glance, a lower dollar would make American products cheaper for foreign buyers and make imports more expensive, helping to reduce the country’s trade deficits. However, these typical commercial effects remain in flow due to current pricing threats.

For developing countries, a lower green tank will reduce the local cost of the dollar repayment debt, relieving countries strongly in debt such as Zambia, Ghana or Pakistan.

Elsewhere, a lower dollar should increase prices of raw materials, increasing export income for countries exporting oil, metals or agricultural products such as Indonesia, Nigeria and Chile.

Have other currencies did well?

Since the start of Trump’s second term in office, the slide of the greenback has overturned general forecasts that his trade war would cause more damage to economies outside the United States, while stimulating American inflation – reinforcing currency against his rivals.

Instead, the euro increased by 13% to more than $ 1.17, while investors continue to focus on growth risks in the United States. At the same time, demand has increased for other safe assets such as German and French government obligations.

For American investors, the lower dollar has also encouraged investment in equity abroad. The Stoxx 600 index, a large measure between European actions, has increased by around 15% since the beginning of 2025.

Converted into dollars, this gain is 23%.

Meanwhile, inflation – once again the predictions of Belly – went from 3% in January to 2.3% in May.

According to Junius, there is no significant threat to the status of the dollar as a de facto reserve currency in the world anytime soon.

But “that doesn’t mean you can’t have more weakening in the US dollar,” he said. “In fact, we continue to expect it by the end of the year.”