US Dollar Index Plummets 10.8% in 2025 First Half Amid Money Supply Surge

The US dollar index (DXY) has experienced a significant downturn in the first half of 2025, marking its worst performance in over five decades. The index declined by 10.8% during this period, the steepest drop since the 14.8% decline observed in the first half of 1973. This decline is concurrent with an unprecedented surge in the US money supply, which has reached a new all-time high.

The latest data from the Federal Reserve Bank of St. Louis reveals that M2, a measure of the total amount of readily available money in the US financial system, stood at $21.942 trillion as of May 2025. This figure surpasses the previous peak of $21.749 trillion recorded in April 2022, underscoring the rapid expansion of the money supply.

The surge in the money supply and the subsequent decline in the US dollar's value have raised concerns about the currency's performance in the coming months. According to Meera Chandan, the co-head of global FX strategy at JPMorgan, the outlook for the US dollar remains bearish. Chandan expects the dollar to continue performing poorly against other major currencies, citing Europe's improving fiscal outlook and the US's rising deficits and national debt as key factors.

Chandan's analysis suggests that the US dollar will face challenges in the second half of the year, with projections indicating a continued decline against currencies such as the euro, Chinese yuan, and Japanese yen. The euro/dollar exchange rate is expected to reach $1.20 to $1.22, while the dollar/CNY rate is projected to be around 7.10 CNY, and the dollar/yen rate is anticipated to be around 140 JPY. Additionally, cyclical currencies like the Australian dollar are expected to strengthen, with projections indicating a rate of $0.68.

The bearish outlook for the US dollar is attributed to several factors, including moderating US economic data, supportive fiscal policies in Europe, and structural issues within the US economy. These factors are expected to contribute to a broad-based decline in the US dollar's value against other major currencies. The moderating US economic data is expected to align more closely with global trends, while Europe's fiscal policy is becoming more growth-supportive. Additionally, the US's structural issues, such as rising deficits and national debt, are likely to weigh on the dollar's performance.