Dollar Plummets 10.8% in 2025 Amid Trade War and Debt Concerns

The American dollar faced significant challenges in the first half of 2025, marking its worst performance since 1973. The index used to estimate the USD value against six other major currencies—including the British pound, Japanese yen, Euro, Canadian dollar, Swedish króna, and Swiss franc—dropped by 10.8% during this period. This decline was more severe than during the COVID-19 crisis and the worst six-month performance since 2009. The Euro, in contrast, showed a 13% growth, defying predictions of a decline, as pension funds and large investors increased their exposure to European assets, reducing their reliance on the USD.

The reasons behind the dollar’s poor performance in 2025 are multifaceted. The first half of 1973 saw a significant drop in the dollar’s value due to the collapse of the Bretton Woods System, which had established the dollar as the central reserve currency. In 2025, while the U.S. was not engaged in a large-scale military conflict, the dollar faced challenges that could be as impactful as the Bretton Woods collapse. Two primary factors were cited for the dollar’s decline: the trade war initiated by Donald Trump and the growing national debt of the U.S. The unpredictable nature of Trump’s tariff policies and his erratic behavior in the trade war eroded foreign investors’ confidence in the U.S. as a stable and predictable investment destination.

Trump’s advocacy for interest rate cuts by the Federal Reserve further weakened the dollar. The Fed officials, however, resisted these calls, aiming to bring inflation rates back to pre-COVID-19 levels. Trump’s push for the “Big, Beautiful Bill,” which extends tax cuts for the wealthy and increases border and military spending, adds to the uncertainty surrounding the U.S. economy and its currency. Non-partisan experts predict that this bill could increase the national debt by $2.4 trillion, exacerbating the financial challenges faced by the U.S.

Cryptocurrencies, often seen as a safe haven, have also influenced the perception of the USD. Bitcoin, with its strong value accumulation power, has become a reserve currency for various entities, including corporations, governments, and retail investors. While some argue that cryptocurrencies debase the USD, the volume of trades made in crypto is not yet critical enough to pose a serious threat. The leading role of USD-pegged stablecoins around the world actually strengthens trust in the American dollar and boosts demand for it, as issuers of these stablecoins are prime buyers of U.S. Treasury bills and other American assets.

In summary, the American dollar’s poor performance in 2025 can be attributed to a combination of factors, including the trade war, growing national debt, and unpredictable policies. While cryptocurrencies present a new dynamic, their impact on the USD is not yet significant enough to overshadow traditional economic factors. The future of the dollar will depend on how these challenges are addressed and the stability of U.S. economic policies.