US Dollar Weakens Sharply as Policy Uncertainty Erodes Investor Confidence
The US dollar is heading toward its steepest annual decline in nearly a decade, as renewed trade tensions under former President Donald Trump and growing concerns over Federal Reserve independence have rattled global currency markets. The greenback has fallen more than 8 percent against a basket of major global currencies in 2025, marking its worst performance since 2017.
Currency strategists say the dollar’s slide reflects a broader reassessment of US economic and political stability. Mr Trump’s aggressive tariff measures, combined with rhetoric perceived as undermining the Federal Reserve’s autonomy, have prompted investors to diversify away from dollar-denominated assets.
“The dollar’s role as a default safe haven is being questioned,” said one global FX strategist. “When policy unpredictability rises, investors look for alternatives.”
Trump’s Tariff Push and Fed Concerns Accelerate the Dollar’s Decline
The dollar’s weakness gathered momentum in April, when it fell 4 percent in a single month following the announcement of sweeping tariffs on what Mr Trump dubbed “liberation day.” The measures sent shockwaves through global financial markets, raising fears of a renewed trade war and its implications for growth and inflation.
Adding to market unease were reports suggesting Mr Trump could seek to replace the Federal Reserve chair with a candidate more inclined toward interest rate cuts. Such speculation reignited concerns about political interference in monetary policy, a cornerstone of the dollar’s credibility.
According to market participants, these developments triggered:
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Reduced foreign appetite for US assets
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Increased currency hedging by global investors
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Stronger demand for non-dollar reserve alternatives
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Dollar Loses Ground Across Major Global Currencies
The dollar’s decline has been broad-based across the G10 currency universe. Against the Japanese yen, the greenback slipped around 0.7 percent, while it plunged as much as 16.8 percent versus the Swedish krona.
Sterling emerged as a notable gainer, with the pound rising 7.1 percent against the dollar over the year. The exchange rate moved from around $1.25 at the end of 2024 to nearly $1.35, reflecting both dollar weakness and relative confidence in the UK’s macro stability.
Currency traders say the magnitude and consistency of the dollar’s losses underscore a structural shift rather than a short-term correction.
De-Dollarisation Trends Gain Momentum
Analysts point to a growing trend among several countries, particularly outside the OECD, to reduce dependence on the US dollar. Concerns over sanctions, financial fragmentation, and geopolitical risk are accelerating this shift.
Alain Bokobza of Societe Generale said, “There is a clear move away from the US dollar, especially among non-OECD countries keen to reduce their exposure to dollar-based assets because of growing concerns about sanctions and financial fragmentation.”
He added that the implications could be far-reaching:
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Weaker global dominance of the dollar
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Higher volatility in foreign exchange markets
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A stronger role for gold as a monetary anchor
Russian Rouble Emerges as 2025’s Best-Performing Currency
In a striking contrast to the dollar’s decline, the Russian rouble has emerged as the strongest-performing currency of 2025, rising about 45 percent against major currencies over the past year. The exchange rate now stands near 78 roubles per dollar, compared with almost 114 at the end of 2024.
Much of the rouble’s recovery has been attributed to expectations that Mr Trump could push for a ceasefire in Ukraine on terms favourable to Russia, easing geopolitical risk premiums.
Tatiana Orlova of Oxford Economics said, “The actions of the US president have driven much of the rouble’s moves this year.”
She noted that the currency experienced bouts of weakness in mid-year when Washington signalled tougher measures, including additional tariffs on imports from India, Russia’s largest oil buyer.
Sanctions, Capital Controls and a Currency Paradox
Despite continued sanctions on Russian energy giants such as Rosneft and Lukoil, the rouble has shown resilience, puzzling some analysts. Ms Orlova described the situation as “a bit of a conundrum,” adding that Russia’s reduced reliance on the dollar and euro in trade may be cushioning the currency.
However, experts caution that the rouble’s strength may not reflect underlying economic health. Russia’s strict capital controls limit money outflows, effectively supporting the exchange rate.
Jane Foley, currency strategist at Rabobank, said, “We have got capital controls in place in Russia, so the stronger exchange rate gives a false impression of economic strength.”
She added that under such conditions, currency movements can offer a distorted view of fundamentals.
Not All Currencies Share the Rouble’s Fortune
While the rouble surged, several emerging market currencies struggled in 2025. The Turkish lira, Ethiopian birr, and Argentine peso ranked among the worst performers globally.
Over the year:
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The Turkish lira fell 17.6 percent against the dollar
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The Ethiopian birr weakened 18 percent
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The Argentine peso plunged 29 percent
Argentina’s currency woes remain particularly severe, with the peso having lost 99 percent of its value over the past decade, reflecting persistent inflation, debt crises, and economic instability.
Investor Takeaway: Currency Markets Enter a New Phase
The dollar’s slide toward its worst annual performance in nearly a decade highlights a turning point in global currency dynamics. Trade policy uncertainty, questions over institutional independence, and rising geopolitical fragmentation are reshaping investor behaviour.
While the greenback remains the world’s dominant reserve currency, 2025 has underscored its vulnerability to political and policy shocks. For investors, this environment calls for greater currency diversification and close monitoring of macro and geopolitical signals.
As one strategist put it, “This is not the end of the dollar era, but it is a reminder that reserve currency status is built on trust—and trust can erode faster than markets expect.”
