In 2025, the U.S. dollar experienced its largest annual decline in eight years. Although some officials within the Trump administration continue to assert that the White House maintains its commitment to a "strong dollar" policy, investors appear unconvinced.

Even with a recent rebound, the U.S. dollar index remains approximately 1% lower since the start of the year, with its total decline for 2025 widening to 9%.

Goldman Sachs foreign exchange strategists noted in a recent client report, "From a fundamental perspective, we believe the new policy uncertainty introduced is here to stay, and is significant enough to prevent the dollar from reclaiming its lost ground." They added, "Investors began the year anticipating more support for the U.S. economic cycle; however, a new series of tariff threats has fundamentally shaken that expectation."

In April of last year, the dollar, long a pillar of the global economy, plunged more than 5% in the days following President Trump's initial announcement of the "Liberation Day" tariff policy. Nearly a year later, the currency has yet to recover those losses.

For decades, the dollar has been regarded as the global reserve currency, a status often referred to as America's "exorbitant privilege." This position has consistently made the dollar and dollar-denominated assets a safe-haven choice for investors during periods of market turmoil.

Thierry Wizman, Global FX Strategist at Macquarie Bank, stated, "If the dollar's reserve status is indeed dependent on the U.S. role globally – as a security guarantor and upholder of a rules-based international order – then the events of the past year... have set the stage for capital to move away from the dollar as investors seek alternatives."

Markets are also assessing the potential shift in U.S. monetary policy following President Trump's nomination of former Federal Reserve Governor Kevin Warsh to replace Jerome Powell as Fed Chair.

Although Warsh is a known monetary policy hawk and served at the Fed during the 2008 financial crisis, news of his nomination provided only a brief boost to the dollar. The reason is that investors had already priced in expectations for an "aggressive interest rate cutting policy under a Warsh-led Fed."

President Trump, in an interview with NBC News, stated that he would not have nominated Warsh if he had expressed any desire to raise interest rates. On February 4th, Trump said, "If he came to me and said 'I want to raise interest rates,' he would not have gotten the job, no way." He also remarked that the potential for the Fed to cut rates was "unquestioned," as U.S. rates are currently "ridiculously high."

Despite the dollar remaining the core anchor of the international financial system, traders are increasingly looking elsewhere for hedging tools—from the euro and Swiss franc to gold—as geopolitical risks and policy uncertainty rise, particularly when the source of this uncertainty is often the U.S. government itself.

Macquarie's Wizman commented, "We believe that, over the medium to long term, the 'diversification trade' away from the dollar is far from over." He noted that dollar weakening cycles are "typically triggered by major geopolitical shifts and domestic policy uncertainty in the U.S.," and such cycles can last a decade or longer. Wizman added, "Based on the model of engagement with the rest of the world that the U.S. government currently seems to want to promote, the dollar cannot maintain its reserve currency status indefinitely."

In 2025, gold prices surged over 60%, marking one of its strongest rallies in history. Despite a recent pullback, gold prices are still more than 70% higher than the previous year.

In early 2026, alongside gold, prices for other precious metals like silver and platinum, as well as industrial metals such as copper and steel, have continued to rise significantly.

Ole Sloth Hansen, Head of Commodity Strategy at Saxo Bank, wrote in a recent client note, "The renewed demand for physical assets is largely driven by the weakening dollar." He stated that concerns about U.S. stability and persistent capital outflows to other markets only "add further pressure to an already fragile dollar situation."

Over the past month, other major currencies like the euro, British pound, and Swiss franc have all appreciated against the dollar. Higher-risk emerging market currencies, which typically trade at a significant discount to the dollar, such as the Brazilian real, Mexican peso, and South African rand, have also strengthened.

Economists at Bank of America noted in a recent client report that it is still premature to label these foreign exchange movements a "dollar debasement." The bank argues that in a true debasement scenario, investors would see a sustained decline in the dollar accompanied by falling valuations for other U.S. financial assets.

Nevertheless, recent exchange rate movements show early signals that differ from cyclical currency fluctuations, suggesting a broader structural shift in investor preferences. Bank of America also indicated that the dollar may have further room to fall, as the "fundamental drivers" behind its weakness—such as the Fed's dovish pivot and the lagged effects of the U.S. trade conflicts with Europe and China—have not yet fully played out.

Steven Kamin, former Director of the Fed's Division of International Finance, wrote in a recent column for the Financial Times, "For now, there is no good alternative to the dollar globally, not even the euro or the renminbi; and the U.S. still has the world's deepest and most liquid open capital markets."

He added, however, "A few years ago, it was difficult to imagine a world where the dollar was not dominant. Today, one can easily envision such a landscape gradually taking shape over the coming decades, even if the process is messy."