U.S. Dollar Suffers Worst First Half in 50 Years, Down 10.7%

The U.S. dollar has experienced its worst first half of the year in five decades, with a cumulative decline of 10.7% against major global currencies by the end of June. This performance marks the most significant semi-annual drop since the end of the Bretton Woods system in 1973. The dollar reached its lowest point since February 2022 during the mid-year period.

This decline is attributed to several factors, including massive fiscal deficits, policy uncertainties, potential rate cuts by the Federal Reserve, and diplomatic tensions. These elements have driven investors to seek alternative safe-haven assets, making it difficult for the dollar to reverse its downward trend. Despite a brief rebound in mid-April due to market expectations of less aggressive tariff policies, the overall trend for the dollar has remained weak since the beginning of the year.

The weakening of the dollar has sparked discussions about the sustainability of the "American exceptionalism" narrative and the future of the dollar's hegemonic status. While a weaker dollar can enhance the competitiveness of U.S. exports, particularly for companies in the S&P 500 that rely heavily on international markets, it also raises concerns about the long-term viability of the dollar's dominant role in global trade and finance.

Currently, the U.S. public debt is approaching 30 trillion dollars, with the fiscal deficit projected to reach nearly 2 trillion dollars by 2025. This substantial debt burden is eroding the attractiveness of dollar-denominated assets. In response, global central banks have been actively purchasing gold, acquiring 24 tons per month, the strongest performance since 1979. This trend is seen as a diversification strategy to reduce reliance on the dollar and hedge against inflation and economic uncertainties.

Some investment institutions have already adopted clear betting strategies. One research institution described the dollar as a "gift that keeps on giving opportunities" and maintained a short position on the dollar. Investors are also closely monitoring whether the Federal Reserve will initiate rate cuts in the second half of the year, which could further exacerbate the dollar's depreciation. Although the dollar and U.S. Treasury yields rose after the last rate cut in 2024, a more dovish policy stance could make it challenging for the dollar to stabilize.

However, some analysts remain optimistic about the dollar's future. One market expert noted that the recent rebound in U.S. stocks indicates strong market confidence in U.S. assets, suggesting that the dollar's weakness may be more due to the appreciation of other currencies and adjustments in hedging strategies. Another analyst argued that concerns about the dollar's role are overstated, emphasizing that the dollar remains the core of the global trade and financial system. The rule of law, market transparency, and high liquidity in the U.S. are seen as irreplaceable advantages that support the dollar's continued dominance.