Eric Sepanek
SBC Founder
Eric Sepanek is the founder of Scottsdale Bullion & Coin, established in 2011. With extensive experience in the precious metals industry, he is dedicated to educating Americans on the wealth preservation power of gold and silver.
The dollar has tumbled to multi-year lows since President Trump rattled the world economy with a sweeping tariff regime. This decline bucks the historical trend of a strong US dollar during trade tensions, suggesting that something might be structurally different this time.
Now, a growing number of trusted economists and major financial institutions are warning of the greenback’s foundational weakness and the country’s bleak future as an investing haven.
The Dollar’s Fledgling Performance
The dollar performed well in 2024, buoyed by the sharp post-pandemic recovery. The US Dollar Index, which tracks the dollar’s value against a basket of major foreign currencies, rose to its highest level since November 2022. Meanwhile, the dollar’s real effective exchange rate (REER) reached a 55-year high by year’s end, underscoring its strength in inflation-adjusted terms.
This dollar rally stretched into the early stages of 2025, extending to an annual high of 109.96 in mid-January. This uptrend hit a stark reversal following Trump’s “Liberation Day” announcement of tariffs on virtually all trading partners–seen as a much more aggressive policy than previously anticipated.
Within a handful of weeks, the DXY fell to a relative low of 98.28, marking a nearly 11% contraction from recent highs. At the same time, the greenback’s REER has stumbled by 2%, highlighting a broader decay in global purchasing power and competitiveness. This trend was reinforced by the relative strength of foreign currencies, which tend to falter during trade disputes.
Why is the dollar weak?
Although economists of all political stripes cautioned of various consequences of far-reaching tariffs, these warnings didn’t extend to the dollar. The consensus on Wall Street and in the administration was that tariffs would be a boon to the greenback.
Even US Treasury Secretary Scott Bessent didn’t anticipate the negative impact, suggesting in a private email that “tariffs are inflationary and would strengthen the dollar.”
Understanding why the US dollar is falling right now requires examining some of the deeper structural and geopolitical forces that have converged in the wake of tariff negotiations and shifting global alliances.
Tariffs Are an Effective Tax Hike
Despite the admin’s insistence to the contrary, tariffs place a tax on imports. As a result, American businesses and consumers could bear the cost.
The nearly $70 billion the US has collected so far in 2025, along with the Tax Foundation’s projected total of over $156 billion by year’s end, amounts to one of the largest effective tax increases in 30 years.
Stock Indices Tanked Heavily
As the importers of foreign goods, US companies experience the first wave of price hikes from tariffs. Whether these additional costs eat into profits or get passed onto consumers, they negatively impact corporate earnings.
This anticipation was reflected in a sharp marketwide downturn with the S&P 500 and Dow Jones losing around 10% each following the April 2nd announcement. Although these indices have mostly recovered, instability persists.
Additionally, Bank of America reported that foreign investors dumped $6.5 billion in US equities in just five trading days ending April 9, 2025.
China Kept the Yuan Strong
During Trump’s first US-led trade war with China, the People’s Bank of China (PBOC) allowed the Yuan to weaken, which softened the economic gut punch to US importers. As in other trade wars, this helped bolster the dollar.
This time around, China kept the Yuan strong, causing the dollar to falter in relative strength.
Foreign Currencies Entered the Void
The dollar’s reserve currency status is the backbone of its strength during trade wars, as the comparative weakness of foreign currencies tends to boost USD demand.
Instead of flowing to the dollar, investors redirected investments to other currencies following the tariff rollout, resulting in a broad elevation for foreign reserves:
- The Euro spiked over 5% to reach a three-year record, sparking chatter about its rising role as a reserve currency.
- The Canadian Dollar rose 4.3% in April 2025, representing its largest monthly increase in over 10 years.
- The Japanese Yen & Swiss Franc have both gained nearly 10% so far in 2025.
- The Taiwan Dollar notched a three-year high against the dollar.
As capital flows out of the dollar and into other assets, both the USD and the broader dollar-based investment ecosystem can be strained.
As former Morgan Stanley banker David Roche explains, “The [dollar’s] underperformance relative to other economies means they take part of that money out again, which weighs on the dollar, and of course weighs on the performance of assets.”
“America First” Scares Away Investments
According to the Council on Foreign Relations, the administration’s tariff negotiations may “have potentially introduced a bit of a risk premium into dollar assets.”
The pursuit of increased domestic manufacturing necessarily reduces trading. This makes the dollar worth less in a globalized economy where value is derived from frequency of use and widespread adoption.
The “America first” approach also increases the dollar’s risk profile as the president could pressure foreign countries to fall in line by taxing their holdings.
This concern is made manifest in Trump’s looming One Big Beautiful Bill Act, which includes a provision to penalize foreign investors from countries the admin judges to have “unfair” tax practices.
In an interview with the Financial Times, one senior banking executive described the tax policy as “one of the more worrisome ideas to have come out of DC this year. If it goes forward, it will definitely cool foreign investment in the US.”
The Dollar Was Overstretched
Goldman Sachs sees the dollar’s tariff-induced dip as the beginning of a long-anticipated correction. Between the Great Financial Crisis and the beginning of 2025, the dollar had surged by 50%. This overvaluation, similar to peaks in the mid-80s and early-00s, set the stage for a downturn.
Historically, the greenback entered a 25% to 30% devaluation following these strong rallies, suggesting the depreciation has around 15% to 20% to go. “I believe that the recent dollar depreciation…has considerably further to go,” explains Sach’s Jan Hatzius.
This fear is echoed by Roche, who anticipates a 15% to 20% plunge in the dollar’s value within the next decade.
De-Dollarization Had Momentum
The de-dollarization story is decades in the making as allies and enemies alike actively detether from the USD, which has increasingly been labeled as a liability instead of an asset. While this movement picked up serious momentum following Western-led sanctions against Russia, the US national debt crisis offered the initial nudge.
Trump’s trade war poured accelerant on this global shunning of the dollar by punishing the holding of US assets, calling decades-old trade relationships into question, and bolstering the case against the dollar’s reliability.
As a Grayscale analyst notes, “Disruptions to the dollar-centric international trade and financial system could result in more reserve diversification by central banks.”
The US Faces a “Confidence Crisis”
The USD’s current weakness is more than a temporary setback or a reflection of short-term market instability. The dollar is experiencing a “confidence crisis in full force,” as ING’s Francesco Pesole bluntly describes. The dollar’s uncharacteristic fragility wasn’t the only troubling signal during the tariff fallout.
US Treasury yields rose sharply, suggesting that investors were demanding greater compensation to hold US debt—a sign of fading confidence rather than flight to safety. The yield on the 10-Year Treasury climbed to 4.5%, defying historical norms where yields typically fall during periods of economic uncertainty.
Altogether, the dollar is falling right now because of systemic weakness, declining trust among investors, and a long arc of divestment. The greenback is failing to navigate a perfect storm of economic, geopolitical, and psychological waves, threatening to capsize the very foundation of its dominance in the global financial order.