Fallout from the recent Greenland crisis clipped the U.S. dollar, aggravating a yearlong decline that has shaved more than 10% off the greenback’s value since President Donald Trump returned to the White House.
The dollar is under pressure on multiple fronts. After a long period of U.S. financial market outperformance, many foreign investors are rebalancing their portfolios to reduce excessive exposure to the United States and to capitalize on improving prospects elsewhere. Washington’s failure to address its mounting public debt, including crisis-level annual budget deficits at a time of low unemployment, isn’t helping.
But perhaps the key to the dollar’s drop is the ripple effect of the president’s erratic policymaking, including abrupt stops and starts with tariffs and military action against a lengthening list of countries. After more than a year of nonstop upheaval emanating from the White House, many foreign investment managers are exhausted.
“There is a visceral dislike of this kind of policy chaos,” said economist Robin Brooks, a senior fellow at the Brookings Institution. “I think the dollar will fall around 10% [more] this year.”
One sign of the dollar’s ebbing appeal has been a staggering surge in gold prices, up almost 80% over the past year.
At the end of January, the dollar rallied — and gold sank — on news that Trump had nominated Kevin Warsh, a former Federal Reserve governor, to be the next chairman of the nation’s central bank.
But the broader trend of dollar weakness remains in place, several economists and money managers said. The president has pushed repeatedly for the Fed to cut its benchmark 3.75% interest rate to levels far below what mainstream economists say is appropriate, which would be likely to further erode the dollar’s standing.
“We should have the lowest interest rate anywhere in the world. They should be two points and even three points lower,” the president said on Thursday during a Cabinet meeting.
The Fed’s policymaking committee left rates unchanged at their January meeting. But financial markets expect cuts to resume in June.
A weaker dollar will help U.S. exporters by making their products more affordable for foreign customers while boosting companies that earn profits abroad and convert them into dollars. A sagging greenback also should aid the president’s efforts to shrink the trade deficit and attract foreign capital to spur U.S. reindustrialization.
But by raising the cost of imported goods such as furniture, computers, cars, appliances, and clothing, a softer dollar could hamper the fight to cool inflation. That would be bad news for the president, already struggling to address voter concerns over the cost of living with the midterm congressional elections little more than nine months away.
The president and his aides have sent mixed signals about the trend. Recently, Trump brushed off currency concerns, telling reporters in Iowa that the dollar “was doing great.” After traders responded by driving it lower, Treasury Secretary Scott Bessent reaffirmed the traditional U.S. stance in favor of a “strong dollar.”
Doubts about Trump’s position have swirled since the 2024 election. A widely-read paper by Stephen Miran, a Trump economic adviser the president later named to a Fed position, argued for a weaker dollar to help rebalance the global trading system. With a nod to the president’s Florida resort, Miran christened the proposed arrangement “the Mar-a-Lago accord.”
No such agreement has emerged. But the dollar showed pronounced weakness on two occasions following major Trump initiatives.
After Trump’s announcement of historic global tariffs last April, U.S. stocks, bonds, and the dollar all sank in an unusual trifecta. While stocks and bonds recovered, the dollar remained depressed — the opposite of what typically happens when a nation imposes new import taxes.
Some analysts diagnosed a widespread “Sell America” trade sweeping financial markets. Bessent scoffed, and many analysts now acknowledge that assessment was overstated. The S&P 500 index hit an all-time high recently, which hardly supports the idea of a flight from U.S. assets.
If foreign investors did not abandon the dollar, they did become less confident in it, a change of sentiment that appeared through increased demand for hedges against their currency exposure.
For a foreign investor, changes in currency values are as important as movements in asset prices.
If the dollar falls while a foreigner holds U.S. stocks or bonds, their investment gains can be eroded or eliminated. Foreign investors can protect themselves against that risk by effectively selling dollars and buying their home currency, a practice called hedging.
When the dollar fell after Trump’s tariff announcements, unhedged investors suffered big losses and some began hedging to mitigate the damage. Those transactions served to encourage the dollar decline, according to a detailed June 2025 analysis by economists with the Bank for International Settlements.
“Global investors have changed their behavior. Even when they want exposure to the U.S. stock market, they now feel that they have to hedge the currency,” said Dario Perkins, an economist with TS Lombard in London.
Another headwind facing the dollar is the growing attractiveness of financial markets outside the U.S. For years, global investors poured funds into the U.S., drawn by available returns that were larger than in other markets.
That’s no longer true. The S&P 500’s 14% return over the past year was dwarfed by gains on exchanges in London, Tokyo, Hong Kong, and Toronto. Brazilian stocks are up 44% since this time last year.
The latest gauges of economic activity also show other economies stirring. Both the United Kingdom and Japan are growing at least as quickly as the U.S., according to January’s flash PMI surveys.
The uptick in activity is driving up the price of industrial metals. Zinc is up 30% since mid-2025 and iron ore is up 11%.
“There was this era of U.S. exceptionalism where the U.S. was significantly outperforming the rest of the world. And now we’re seeing more of a broad base. Global growth is picking up,” said Priya Misra, portfolio manager of JPMorgan’s core-plus bond fund.
Even after its recent decline, the dollar is about as strong, adjusted for inflation, as it was three years ago and remains at a level some analysts call “overvalued.” Many analysts expect a further decline this year. But there seems little reason to anticipate a full-fledged rout.
In a statement, Joseph Lavorgna, a counselor to the treasury secretary, described the dollar’s dip as unremarkable. The inflation-adjusted dollar “remains higher today than it was during President Trump’s first term, and it is overall at one of its highest levels in the last several decades,” he said.
Even as foreign investors edge away from the geopolitical chaos enveloping the dollar, it remains the global reserve currency. No viable alternative exists. Global central banks hold more than $7.4 trillion in U.S. currency, by far their largest single holding.
The U.S. also boasts the largest and most liquid financial markets. Its leading position in artificial intelligence makes it an essential destination, even for investors who are skeptical of Trump’s governing style.
“The U.S. economy is one of the strongest, most dynamic in the world. Investors should be careful about declaring the dollar is dead,” said Daniel Ivascyn, chief investment officer for Pimco in Newport Beach, Calif.
Foreign central banks also would be expected to push back against any rapid dollar plunge, according to economists at Bank of America. The flip side of a sinking dollar, by definition, is the appreciation of other currencies, a particular problem for exporting nations and a “recessionary shock” for the world outside the U.S., they said in a client note recently.
One wild card is the situation in Japan, where a long era of ultralow borrowing costs appears to have ended. That suggests the Japanese economy may have decisively emerged from its long-term funk. But rising interest rates threaten a popular strategy long used by global investors.
When Japanese interest rates hovered near zero, global investors could borrow yen cheaply and then invest it in U.S. and other markets, earning sizable returns via a strategy known as the “carry trade.”
Japanese investors hold nearly $5 trillion in overseas securities, with most of that amount in the U.S. With the gap narrowing between yields in Japan and those in other developed markets, some analysts expect Japanese investors to bring a portion of that money home.
Last week, Michael Burry, the famed investor known for “The Big Short,” posted several Japanese financial charts on X under the terse heading: “Repatriation pending.”
So far, there has been no sign of any Japanese exit, and some analysts think the concern is overblown.
“Japanese interest rates have been going up for some time now, and I’m not seeing any evidence that the Japanese are keeping their money at home,” said Marc Chandler, chief market strategist at Bannockburn Capital Markets in New York.
If that changes, it would only add to the downdrafts buffeting the dollar.
