US Dollar Plummets 10.8% in 2023, Worst Performance Since 1973

The US dollar has experienced a significant decline in the first half of the year, marking its worst performance since 1973. The US dollar index, which measures the dollar against a basket of its currency peers, has fallen by approximately 10.8% since the beginning of the year. This decline has positioned the greenback at its lowest levels since February 2022, with currency strategists predicting further weakening.

The downturn in the US dollar's value can be attributed to several factors, including tariffs, threats to the Federal Reserve’s independence, rising US debt, and inflation fears. The decline began after US President Donald Trump took office in January, with uncertainties over policy outlook, particularly on trade, being cited as a trigger. The erratic nature of policy formation has also contributed to the dollar's weakening.

Derek Halpenny, managing director and head of research with MUFG Bank, noted that the uncertainties surrounding trade policies and the erratic nature of policy formation have played a significant role in the dollar's decline. Elias Haddad, a global macro strategist with Brown Brothers Harriman, highlighted that the US dollar is facing structural drag due to loss of confidence in US trade, fiscal, and security policies, as well as political meddling with the Fed’s independence. These factors threaten to accelerate the dollar’s declining role as the primary reserve currency.

The US Dollar Index (DXY) is currently trading at 97.03, reflecting the ongoing weakness of the US dollar. The combination of tariffs, policy uncertainties, and rising debt has created a challenging environment for the currency, with analysts predicting that the dollar may continue to weaken in the coming months. The structural issues facing the US dollar, including loss of confidence in US policies and political interference with the Federal Reserve, are likely to have long-term implications for the currency's role in the global economy.