The US dollar is currently losing significant control and stability, which can be attributed to chaotic currency movements and unstable US politics. This development is causing considerable uncertainty in the financial markets, especially among foreign exchange traders on Wall Street, who no longer find their previous trading models and strategies reliable.
Causes of the Weakness of the US Dollar
- The unpredictable economic and trade policy under President Donald Trump, including new tariffs and verbal attacks on the dollar itself.
- Growing concerns over the rising national debt of the US, which is undermining confidence in the dollar.
- Expected pressure for interest rate cuts on the Federal Reserve, which diminishes the dollar’s attractiveness compared to other currencies.
These factors have led to the US dollar losing about 10% of its value against major currencies since the beginning of 2025 – the worst half-year result since 1973. Despite higher interest rates in the US compared to Europe, the Euro, for instance, increased by around 13% to a four-year high – a break from previous correlations between interest rate differentials and exchange rates.
Global Consequences of Dollar Weakness
- The traditional rules of thumb for currency traders no longer apply; there is uncertainty regarding price movements.
- Traders prefer more defensive positions instead of aggressive speculation.
- A BarclayHedge index shows only +0.6% profit for 25 currency strategies, marking the weakest yearly start since 2017.
For European investors, this situation means increased volatility in the foreign exchange market and uncertainties in international investments.
Despite these turbulences, a complete crash or loss of the dollar’s role as the world reserve currency is currently excluded. Alternative reserve currencies or asset classes like gold or cryptocurrencies do not yet offer serious competition to the dollar.
In summary: The US dollar is in a phase of significant instability due to political uncertainties and economic challenges in the US. This development is leading to chaotic movements in the foreign exchange market, severely complicating forecasts and presenting new risks to investors worldwide – European investors should also closely monitor these dynamics.