The US dollar is having its worst year in decades
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As 2025 draws to a close, one of the most talked-about financial narratives has been the steep decline of the US dollar. The greenback is on track for its most significant annual drop in nearly a decade, a development that can be largely traced back to the trade policies of former President Donald Trump and the subsequent ripples felt throughout the global economy.
Trump’s aggressive approach to tariffs, known colloquially as his “tariff blitz,” along with perceived encroachments on the autonomy of the Federal Reserve, have sparked considerable concern among investors. Over the past year, the dollar has plummeted more than 8% against a basket of ten major global currencies, marking its most substantial decline since 2017. Such a drastic drop raises questions about the currency’s stability and future as a global benchmark.
In stark contrast to the dollar’s struggles, the Russian rouble has emerged as the strongest-performing currency of 2025. Against a backdrop of ongoing conflict and Western sanctions, the rouble has rebounded miraculously, surging 45% over the course of the year against major currencies. This astounding recovery emphasizes the complexities of global finance, where fortunes can shift dramatically under pressure.
Diving deeper into the dollar’s performance, it has seen varying declines against other major currencies. For instance, it dropped 7.1% against the British pound, which has risen from $1.25 a year ago to nearly $1.35 today. Against the Japanese yen, the dollar’s fall was somewhat more muted at just 0.7%. However, it took a significant downturn of 16.8% against the Swedish krona, underscoring the pervasive instability of the dollar.
The most dramatic event contributing to the dollar’s plunge occurred in April 2025, when it fell by 4% in a single month following Trump’s announcement of “liberation day” tariffs. The backlash against these tariffs sent shockwaves through the financial markets, reinforcing fears of economic isolationism and changing trade dynamics. These moves raised alarm among investors, particularly as rumors circulated that Trump might attempt to appoint a head of the Federal Reserve who favored aggressive interest rate cuts. This possibility fostered an environment of uncertainty, leading many traders to seek refuge in other currencies.
Alain Bokobza from Societe Generale has noted a distinct shift away from the dollar, particularly among non-OECD countries. These nations, wary of increasing sanctions and the potential of financial fragmentation, are keen to minimize their reliance on dollar-denominated assets. This trend suggests a recalibration of global finance, with countries diversifying their reserves in search of stability beyond the traditional paradigms dominated by the dollar.
As we look ahead, it remains to be seen whether this trend will stabilize or escalate. The ongoing challenges facing the dollar could reshape international trade and investment strategies, compelling countries to adapt in an ever-evolving economic landscape. In this regard, 2025 has not only underscored the dollar’s vulnerabilities but also spotlighted the resilience and adaptability of other global currencies in the face of uncertainty. The implications of these shifts will be felt for years to come, influencing not just markets but potentially the geopolitical landscape as well.
