In 2025, the US dollar suffered its biggest annual decline in eight years. While some in the Trump administration insist the White House is confident in maintaining a “strong dollar,” investors don’t seem convinced.
Despite a recent rally, the dollar index (DX-Y.NYB) remains about 1% below where it started the year, adding to the 9% decline seen in 2025.
“Fundamentally, we think the recent injection of policy uncertainty will be durable enough to keep the dollar from making up lost ground,” foreign exchange strategists at Goldman Sachs wrote in a recent client note.
“Investors came into the year with high expectations Support for the economic cycle, but instead a series of new tariff threats have shaken those expectations.”
In the days since President Trump first announced his “Liberation Day” tariffs last April, the U.S. dollar, long a bastion of the global economy, fell more than 5%. Almost a year later, the greenback has yet to recover these losses.
The dollar has been viewed as the world’s reserve currency for decades, often referred to as the “extreme privilege” enjoyed by the US. This position has served the dollar – and dollar-denominated assets – as a safe haven during market turmoil.
“If the USD’s reserve status depends on the US role in the world – as guarantor of security and rules-based order – then the events of the past year carry the seeds of a realignment from the US dollar and a search for alternatives,” said Thierry Wiseman, global and foreign exchange rate strategist at Macquarie Bank.
Read more: How a weak dollar can affect your wallet
Markets are also assessing possible changes in US monetary policy from President Trump’s nominee to replace Fed Chairman Jerome Powell, former Fed Governor Kevin Warsh.
Warsh, an avowed monetary hawk, spent his first stretch at the Federal Reserve during the 2008 financial crisis, only as news of his nomination strengthened the dollar as investors priced in potential aggressive rate cuts from the Warsh-led Fed.
In comments to NBC News, President Trump said he would not have nominated Warsh to be Fed chairman if Warsh had shown any interest in raising rates.
Trump said on Feb. 4, “If he came in and said, ‘I want to raise them,’ … he wouldn’t get the job, no,” the president said. There is “very little” doubt that the Fed will cut rates because “we are too high on interest rates,” the president said.
Still, the dollar remains the anchor of the international financial system, but traders are increasingly looking elsewhere for hedges — from the euro to the Swiss franc to gold — as geopolitical risks and policy uncertainty rise. And the source of this uncertainty in particular often comes from the US administration.
“We don’t think the US dollar’s ‘diversity trade’ is over in the medium to long term,” Macquarie’s Wiseman said, adding that “waves of a weaker US dollar, generally driven by significant geopolitical changes and policy uncertainty in the US,” could last a decade or longer.
“The USD cannot maintain its reserve currency status indefinitely in the direction the US administration is trying to take the US in the eyes of the rest of the world,” Wiseman said.
Gold (GC=F) appreciated north of 60% through 2025 in its strongest rally on record. It’s up more than 70% over the past year, despite a recent pullback.
Other metals, including precious metals silver (SI=F) and platinum (PL=F), as well as industrial products copper (HG=F) and steel (HRC=F), are also expected to continue higher growth with gold through early 2026.
Read more: Are you thinking of buying gold? Here’s what investors need to watch.
“The key driver of renewed demand for hard assets has been the US dollar,” Ole Sloth Hansen, head of commodities at Saxo Bank, wrote in a recent client note. Concerns about U.S. stability and increased capital outflows to other markets, Hansen said, “have added to an already weak backdrop for the currency.”
Other major currencies, including the euro, pound and Swiss franc, have also gained against the dollar over the past month. So are the more risk-on emerging market currencies that typically trade at huge discounts to the dollar, from the Brazilian real to the Mexican peso to the South African rand.
Economists at Bank of America said in a recent client note that it may be too early to call movements in FX pairs a sign of a dollar collapse. The firm argued that in a true bearish scenario, investors would see the dollar in a prolonged decline as valuations in other US-based financial assets decline.
Still, recent moves show nascent signs of divergence from cyclical currency swings and suggest larger structural changes in investors’ preferences. And while the dollar may have more room to fall, BofA argued, the “fundamental drivers” of dollar weakness — such as the dovish pivot from the Fed and the lingering effects of trade wars with Europe and China — are still in play.
“Currently, there is no good alternative to the dollar for a global currency, not even the euro or the renminbi,” and “the U.S. still has the world’s deepest and most liquid open capital markets,” Steven Kamin, head of international finance at the Federal Reserve, wrote in a recent column for the Financial Times.
“But a few years ago, it would have been difficult to foresee a world without the dominance of the dollar,” he added, adding, “Now one can easily imagine such a disorder emerging in the coming decades.”
Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him jake.conley@yahooinc.com.
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