US dollar lost ground: what does Trump have to do with it

The US dollar got off to its worst start in half a century. In the first six months of 2025, it depreciated by more than 10%, the largest drop since 1973. Analysts cite the political rhetoric and economic initiatives of Donald Trump as the main reason. Trump is gaining political weight again ahead of the election.

According to Financial Times, after Trump's return to the forefront of American politics, his initiatives are causing increasing concern in global markets. One such initiative is a new tax reform that could potentially add about $3.5 trillion to the US national debt over 10 years.

ING currency strategist Francesco Pezole called the dollar a "scapegoat" for Trump's unpredictable policies. Amid statements about possible tariffs, tax concessions, and reduced business regulation, investors have begun to question Washington's fiscal responsibility.

Debt is rising and rates are falling

Monetary policy exacerbates this situation. The Federal Reserve is expected to cut its key policy rate up to five times between 2025 and 2026. Loose monetary policy reduces the attractiveness of dollar-denominated assets, particularly bonds.

Consequently, investors are actively exiting the US government bond market. Consequently, demand for the currency itself is falling. The dollar's depreciation is a direct result of the loss of confidence in US economic stability.

Euro, gold, and German bonds are gaining ground

While the dollar is losing value, other assets are gaining value. The euro rose to $1.17, up 13% from the beginning of the year. Demand for alternative safe havens is growing: German bonds, gold, and the Swiss franc. Pension funds, sovereign wealth funds, and central banks are particularly active, significantly reducing the dollar share of their reserves.

There is also growing interest in currency hedging, as investors try to protect themselves from exchange rate fluctuations and increase the predictability of their profits. This explains why demand for short positions against the dollar (i.e., bets on its decline) remains high.

Can the dollar recover?

Although the situation appears dire, some analysts are not ready to abandon the dollar. They predict gradual stabilization by 2026, provided that the Fed acts consistently and political risks decrease.

Even then, however, confidence in the dollar as a global reserve currency may continue to erode. Too many factors are currently working against it, including geopolitical changes and the growing roles of China and the EU in the global financial architecture.

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