In 2025, the U.S. dollar suffered its largest annual decline in eight years. While some in the Trump administration continue to insist that the White House believes in maintaining a “strong dollar,” investors don’t appear convinced.
Despite a rebound in recent days, the U.S. dollar index (DX-Y.NYB) is still down about 1% from the beginning of the year, and is down 9% in 2025.
“Fundamentally, we believe the recent injection of policy uncertainty will be persistent enough to prevent the dollar from regaining ground,” Goldman Sachs FX strategists wrote in a recent client note.
“Investors expect more as we enter the new yearSupport for the economic cycle, but a series of new tariff threats have shaken those expectations. “
Last April, in the days after President Trump first announced “Liberation Day” tariffs, the dollar, long a bastion of the global economy, fell more than 5%. Nearly a year later, the dollar has yet to recoup those losses.
For decades, the U.S. dollar has been viewed as the world’s reserve currency, often referred to as an “exorbitant privilege” enjoyed by the United States. This status makes the U.S. dollar and U.S. dollar-denominated assets a safe haven during periods of market turmoil.
Thierry Wizman, global and currency strategist at Macquarie Bank, said: “If the dollar’s reserve status does depend on the United States’ role in the world – as the guarantor of security and the rules-based order – then the events of the past year … have sown the seeds of a reallocation of the dollar and the search for alternatives.”
Read more: How a Weak Dollar Could Affect Your Wallet
Markets are also evaluating potential shifts in U.S. monetary policy from Jerome Powell, President Trump’s nominee for Federal Reserve chairman, and former Fed governor Kevin Warsh.
Although Warsh is an avowed currency hawk who first served at the Fed during the 2008 financial crisis, news of his nomination only briefly boosted the dollar as investors priced in the possibility of a steep rate cut by a Warsh-led Fed.
President Trump said in an interview with NBC News that he would not have nominated Warsh to be Fed chairman if Warsh had expressed an interest in raising interest rates.
Trump said on February 4, “If he came in and said, ‘I want to raise interest rates’ … he wouldn’t get the job, no.” The president said there was “not a lot” of doubt that the Fed would lower interest rates because “our rates are too high.”
Kevin Warsh talks about his transparency report at the Bank of England on December 11, 2014 in London. (AP Photo/Alastair Grant) ·Associated Press
Still, the U.S. dollar remains the backbone of the international financial system, but as geopolitical risks and policy uncertainty rise, traders are increasingly seeking hedging elsewhere — from the euro to the Swiss franc to gold. Especially given that the source of this uncertainty often comes from the U.S. government.
“We don’t think there will be an end to the dollar’s ‘diversified trade’ in the medium to long term,” said Macquarie’s Weitzman, noting that waves of dollar weakness “are often triggered by important geopolitical changes and policy uncertainty in the United States” and could last a decade or more.
“With the direction the U.S. government seems to want to take to compare the U.S. to the rest of the world, the U.S. dollar cannot maintain its reserve currency status indefinitely,” Weitzman said.
Gold (GC=F) is set to gain over 60% in 2025, one of the strongest rallies on record. Despite the recent pullback, last year’s gains were still over 70%.
Other metals, including precious metals silver (SI=F) and platinum (PL=F), as well as industrial products copper (HG=F) and steel (HRC=F), also continued to surge alongside gold in early 2026.
Read more: Considering buying gold? This is what investors should pay attention to.
“A key driver of the recovery in hard asset demand is the U.S. dollar,” Ole Sloth Hansen, head of commodities at Saxo Bank, wrote in a recent client note. Concerns about U.S. stability and continued capital outflows to other markets will only “exacerbate an already fragile currency backdrop,” Hansen said.
Other major currencies, including the euro, pound and Swiss franc, have also gained against the dollar over the past month. As a result, emerging market currencies are also riskier, from the Brazilian real to the Mexican peso to the South African rand, which often trade at steep discounts to the U.S. dollar.
Bank of America economists said in a recent client note that it was too early to call the movement in currency pairings a sign of dollar weakness. The firm believes that in the event of a true depreciation, investors would see the U.S. dollar decline in value over the long term, along with lower valuations for other U.S. financial assets.
Even so, the recent moves show new signs that diverge from cyclical currency swings and point to a larger structural shift in investor preferences. Bank of America believes the dollar may have more room to fall as “fundamental drivers” of dollar weakness – such as the Federal Reserve’s dovish turn and the lagged impact of the trade war with Europe and China – have yet to take effect.
“Currently, there are no good alternatives as a global currency, not even the euro or the yuan,” Steven Kamin, the Fed’s former director of international finance, wrote in a recent Financial Times op-ed. “The United States still has the deepest and most liquid open capital markets in the world.”
“But a few years ago it was difficult to envision a world without the dominance of the dollar,” he added. “Now it’s easy to imagine such chaos in the coming decades.”
Jake Conley is Yahoo Finance’s breaking news reporter covering the U.S. stock market. Follow him on X @byjakeconley or email jack companynley@technology shoutinc.com.
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