What's happened
The US dollar fell about 8-10% in 2025, its worst annual performance in eight years, driven by Federal Reserve rate cuts, geopolitical tensions, and President Trump's tariffs, with ongoing implications for global markets and US exports.
What's behind the headline?
The dollar's 2025 decline reflects a complex interplay of monetary policy, geopolitical tensions, and trade policies. The Fed's rate cuts, expected to continue into 2026, will likely sustain downward pressure on the dollar, reducing its appeal for investors seeking yield. Meanwhile, President Trump's tariffs and trade uncertainties have heightened market volatility, discouraging foreign investment in US assets and prompting foreign governments to reduce holdings of US Treasuries. This shift diminishes demand for the dollar, further weakening it. The decline benefits US exporters and certain industries by making American goods more competitive abroad, but it also raises inflationary pressures domestically by increasing the cost of imports. The ongoing geopolitical tensions and global economic slowdown suggest the dollar's weakness may persist, impacting US trade balances and international investment flows. The upcoming Federal Reserve leadership decision and rate policy will be critical in shaping the dollar's trajectory in 2026, with potential for further depreciation if dovish policies prevail.
What the papers say
The NY Post highlights the dollar's sharpest decline in eight years, citing President Trump's tariffs and Fed rate cuts as key drivers. Business Insider UK emphasizes the broader decline against major currencies, noting the impact of rate cuts and trade uncertainty on investor sentiment. Both sources agree that the dollar's weakness is linked to monetary easing and geopolitical risks, but differ slightly in their focus—NY Post on market reactions and policy, Business Insider on global implications and export benefits. The NY Post underscores the potential for continued weakness, while Business Insider discusses the mixed domestic effects, including inflation and consumer costs.
How we got here
The dollar's decline in 2025 stems from a combination of Federal Reserve rate cuts, triggered by slowing economic growth and rising unemployment, and President Trump's tariff policies, which increased market uncertainty and dampened demand for the US currency. The first half of the year saw a sharp drop, exacerbated by tariffs and geopolitical risks, while the Fed's easing cycle further pressured the dollar as investors anticipated lower yields and a dovish monetary stance.
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