Dollar slumps to 50-year low as Trump’s tariffs, Fed rift rattle markets

The US dollar has posted its worst first-half performance in more than 50 years, hit by President Donald Trump’s aggressive tariff policies, investor fears over rising national debt, and bets on Federal Reserve rate cuts. According to Bloomberg and The Guardian, the US Dollar Index fell 10.8 per cent in the first six months of 2025, a slump unmatched since 1973.

Dollar index dives amid policy uncertainty

The US Dollar Index, which measures the greenback against a basket of major currencies, has dropped to its lowest level since March 2022. The scale of this year’s decline rivals the 14.8 per cent plunge in the first half of 1973 during Richard Nixon’s presidency. According to Bloomberg, traders have been spooked by Trump’s surprise “Liberation Day” tariff hikes in April. The policy, aimed at extracting concessions from China, Mexico and Canada, triggered a sharp sell-off in dollar assets and prompted fears of a global trade war.

Although the White House paused some tariffs for 90 days under pressure from investors, uncertainty remains high. Analysts say the repeated tariff threats have undermined confidence in the dollar as a safe-haven currency, while worries about the US fiscal outlook are adding to the strain.

Here’s a snapshot illustrating how severe the 2025 slump has been in historical context:

This graphic highlight that outside of crisis years like 1973, the dollar typically moves within a far narrower band in the first half of the year. The 2025 slump is one of the largest moves in over five decades, underlining just how severely investor sentiment has been shaken.

Rate-cut expectations deepen dollar weakness

As reported by Bloomberg, traders are increasingly convinced that the Federal Reserve will have to cut interest rates to counter weaker growth. President Trump has repeatedly attacked the Fed for not cutting fast enough and has suggested he might replace Chair Jerome Powell with someone more dovish.

Markets are pricing in multiple rate reductions over the coming year. Lower rates reduce the yield on dollar-denominated assets, making the currency less attractive to global investors.

Investors rotate away from US assets

According to The Guardian, the dollar’s decline has been matched by strength in rival currencies. Sterling has risen to a three-year high of $1.37, while the euro is up around 5 per cent so far this year.

This reflects a broader rotation out of US assets amid worries about the country’s ballooning debt and unpredictable trade policy. Trump’s expansive budget plans, described as the “big beautiful” budget, are expected to push borrowing even higher, fuelling further doubts about the dollar’s long-term stability.

US stock markets rebound despite tariff shock

Despite the dollar’s slump and an early-year sell-off, US equity markets have bounced back. The April tariff announcement led to the sharpest equity correction since the pandemic, with the S&P 500 tumbling more than 10 per cent in just two days.

Bloomberg reports that this volatility was quickly reversed once tariffs were paused and strong earnings, particularly from AI-focused firms, supported sentiment. By the end of June, the S&P 500 had regained ground to post a 5 per cent gain for the year, though it still lagged key European indices.

Europe and UK outperform

As detailed in The Guardian, European markets have outpaced Wall Street. The pan-European Stoxx 600 index rose 7 per cent in the first half of 2025, the UK’s FTSE 100 gained 7.2 per cent, and Germany’s Dax surged 20 per cent, making Europe one of the best-performing regions globally.

Investment analysts note that tariffs, earnings downgrades, geopolitical conflicts, and fears over US debt have prompted a shift in investor preferences, reducing America’s dominance in global portfolios.

Winners and losers among sectors

Technology stocks have seen diverging fortunes. Meta Platforms, Facebook’s owner, has soared 25 per cent on AI optimism, while Apple has lost nearly 20 per cent amid concerns about tariffs on Chinese imports and fears it has fallen behind in the AI race.

Meanwhile, safe-haven assets have benefited. Gold prices have jumped 25 per cent in 2025 so far, as investors seek protection against market volatility and policy uncertainty.

The road ahead for the dollar

With Trump’s tariff threats still hanging over trade partners, ongoing geopolitical tensions, and questions about the Federal Reserve’s path, analysts warn that the greenback could face further turbulence in the second half of 2025.

While US stocks have shown resilience, the dollar’s worst first-half slump in over 50 years underscores the deep anxiety about America’s economic direction and its traditional role as the world’s reserve currency.

(With inputs from the agencies)