Is the US Dollar Losing Value? Tariffs, Deficits, and Gold

Yes, the US dollar is losing value. Since early 2025 it has fallen roughly 10% against a basket of major currencies, and by some measures the first half of 2025 was its steepest six-month drop in more than 50 years.¹ The decline is driven by tariffs and foreign retaliation, narrowing interest-rate advantages, rising federal debt, and a Middle East energy shock. It is real, it is measurable, and it is showing up in what Americans pay for imported goods and foreign travel.

How Far the Dollar Has Fallen

The U.S. Dollar Index (DXY), which tracks the greenback against the euro, yen, pound, and other major currencies, dropped about 11% in the first half of 2025.¹ It hit a 52-week low of 95.55 on January 27, 2026, then rebounded modestly. As of mid-2026 the DXY sits near 100, still about 10% below where it stood at the start of the current Trump term.² That ended a 15-year run in which the dollar had risen roughly 40% between 2010 and 2024.³

Against individual currencies, the losses have been sharper. The dollar fell 10% to 17% against the Swiss franc, euro, Danish krone, and Swedish krona, and about 16% against the Mexican peso.⁴ The euro strengthened from roughly 1.01 per dollar in February 2025 to nearly 1.19 by September, closing 2025 at 1.1756.⁵

Why the Dollar Is Weakening

Tariffs and Foreign Retaliation

The biggest catalyst was the April 2, 2025, “Liberation Day” tariff announcement, which imposed sweeping reciprocal tariffs on a broad set of trading partners. Standard trade models predict that tariffs, if unanswered, should strengthen the imposing country’s currency. But when trading partners retaliate, the effect flips, and the dollar weakens. Nearly all of the 2025 tariffs were met with retaliation, which is why the dollar fell instead of rising.⁶

The average U.S. tariff rate climbed to 16.8% by November 2025, up from less than 2% for most of the previous two decades.⁷ That is a scale of protectionism the modern currency market had not been tested against.

The Interest-Rate Gap Is Closing

For years, the dollar attracted global capital because U.S. interest rates ran well above those of other major economies. That gap has narrowed. The Federal Reserve cut rates through much of 2025 and into early 2026, bringing the federal funds rate to 3.5%–3.75% by January 2026.⁸ The yield advantage of U.S. bonds over their global counterparts shrank from 2.4 percentage points in January 2025 to 1.4 points by late February 2026.⁹

Morgan Stanley describes this convergence as the central force behind continued dollar weakness and projects the dollar could fall another 10% by the end of 2026 if U.S. growth slows to around 1%, down from 2.8% in 2024.¹

Debt and Deficits

U.S. national debt is around 100% of GDP, with annual budget deficits near 6%. Foreign investors now hold 33% of U.S. debt, down from 44% in 2016.¹⁰ The One Big Beautiful Bill Act, passed by the House in 2025, is projected to add $2.4 trillion to primary deficits over the next decade and $3.0 trillion to the national debt including interest; if its temporary provisions become permanent without offsets, the cost could reach $5.0 trillion.¹¹ Debt-to-GDP is projected to reach 122.7% by fiscal 2034.¹²

Fitch downgraded the U.S. credit rating in 2023, citing rising debt and budget brinkmanship, following a similar move by Standard & Poor’s in 2011.¹³

The Iran Conflict and Oil Prices

A joint U.S.-Israel strike on Iran around March 2, 2026, triggered what has been described as the biggest oil supply disruption in history. The effective closure of the Strait of Hormuz, which carries roughly 20% of global oil and gas shipments, pushed crude up more than 35% in a single week to $119.50 per barrel.¹⁴ Qatar, which supplies about 20% of global liquefied natural gas, halted production after Iranian drone attacks, doubling gas prices in Europe and Asia.¹⁵

The Federal Reserve’s April 2026 meeting minutes noted that the dollar had become “highly sensitive” to Middle East developments, with energy-driven inflation complicating the Fed’s ability to ease policy further.¹⁶

What a Weaker Dollar Costs You

Economists call the falling dollar a “hidden tax” because it quietly raises the price of imported goods, and the U.S. imports a lot of what it consumes.⁴ In an advanced economy, roughly 5% to 10% of a currency decline typically passes through to consumer prices. When tariffs run alongside a weaker dollar, the pain compounds: a stronger dollar would normally cushion some of the tariff cost, and a weaker one strips that cushion away.¹⁷

The effect is already visible. Coffee prices in the U.S. rose nearly 19% over the past year, partly because the dollar dropped about 13% against the Brazilian real.⁴ Broader consumer prices rose 2.4% over the 12 months ending in February 2026, with food up 3.1%, shelter up 3.0%, and household furnishings up 3.9%.¹⁸ A Federal Reserve Bank of St. Louis analysis found that tariffs alone accounted for about 0.5 percentage points of annualized headline inflation by mid-2025, and only about 35% of the predicted tariff-driven price increases had shown up by that point — meaning more was still on the way.¹⁹

Overseas travel is more expensive too. With the dollar 10% to 17% weaker against most European currencies and the Mexican peso, Americans vacationing abroad get noticeably less for their money than they did in early 2025.⁴

Who Benefits From a Weaker Dollar

Not everyone loses. U.S. exporters find their goods cheaper for foreign buyers, which can support manufacturing employment and narrow the trade deficit. American companies with large foreign operations see overseas revenue translate into more dollars, lifting reported profits.²⁰ The U.S. also becomes a cheaper destination for foreign tourists.

Investors holding foreign stocks have gained too. In the first half of 2025, the MSCI ACWI ex-U.S. index delivered 19% in dollar terms; only 9.7% came from local stock gains, and the remaining 8.4 percentage points came from the dollar’s decline making foreign assets worth more when converted back.¹²

Is the Dollar Still a Safe Haven?

One of the most unsettling moments of 2025 came in the days after the April 2 tariff announcement. Normally, when global markets panic, money floods into the dollar and U.S. Treasuries; prices rise and yields fall. This time the opposite happened. U.S. stocks, Treasury bonds, and the dollar all fell together, with volatility hitting levels exceeded only during the 2008 financial crisis and the COVID-19 pandemic.²¹ For a stretch, the dollar behaved statistically more like an emerging-market “risk-on” currency than a global safe haven.²²

The rupture appears to have been temporary. By mid-2025 the dollar’s traditional safe-haven behavior had returned, and for the full year overseas investors purchased a net $1.55 trillion of long-term U.S. financial assets, up from $1.18 trillion in 2024.²³ Whether April 2025 was a one-off shock or an early warning is still being debated.

Reserve Currency Status

The dollar’s share of global foreign exchange reserves has been slipping for decades, from over 70% in 1999 to about 57% by the third quarter of 2025. Even so, the dollar is involved in 89% of global foreign exchange transactions, actually up from 84% in 2022, and total foreign-held dollar reserves stand at $7.4 trillion.⁹

When IMF reserve data is adjusted for exchange-rate effects (a weaker dollar mechanically shrinks the reported dollar value of reserves even if central banks haven’t sold anything), actual allocations have been stable. Diversification is flowing into smaller currencies like the Swedish krona, Korean won, and Singapore dollar rather than into the euro or yuan. The yuan lost allocation share during the period.²⁴

China and Russia now conduct roughly 90% of their bilateral trade in yuan and rubles, and about one-fifth of global oil trades in 2023 settled in non-dollar currencies.²⁵ The Chinese yuan itself, however, accounts for less than 4% of global trade and under 2% of reserves.⁹ For a general saver or consumer in the U.S., that means the dollar is weaker but not being replaced.

Gold and Bitcoin as the Mirror Image

Gold has been the clearest beneficiary of the dollar’s decline. Prices topped $4,000 per ounce for the first time in October 2025, capping a roughly 50% gain for the year, and exceeded $4,600 in early 2026.²⁶²⁷ J.P. Morgan projects gold could average over $5,000 in the fourth quarter of 2026.²⁸ Central banks have been the main buyers: gold now accounts for a larger share of central bank reserves than U.S. Treasuries for the first time since 1996.

The Trump administration added a new element in March 2025 with Executive Order 14233, which established a Strategic Bitcoin Reserve. The order directed the Treasury to hold Bitcoin forfeited through legal proceedings as reserve assets that cannot be sold, framing the cryptocurrency as “digital gold.”²⁹

What Could Change the Direction

The Fed’s rate path is the single biggest lever. After cutting through 2025, the Fed held steady at 3.5%–3.75% in January 2026, and J.P. Morgan projects no further cuts for the rest of the year.⁸ Morgan Stanley sees the DXY dipping to around 94 by mid-2026 before rebounding to 100 by year-end if growth reaccelerates.³⁰

Leadership at the Fed is the wildcard. President Trump nominated Kevin Warsh to replace Jerome Powell as Fed chair, effective May 2026.⁸ Warsh, historically viewed as an inflation hawk, has more recently aligned with the administration’s preference for lower rates. His confirmation requires Senate approval, expected given the Republican majority, though it may face delays tied to a Department of Justice investigation involving outgoing Chair Powell.³¹

Forecasters disagree on how much further the dollar has to fall. Harvard economist Kenneth Rogoff said the dollar remains “wildly overvalued” and could drop another 15% over the next five to six years.⁴ TD Economics called the current level “not far off its fundamental value” and forecast only about 3% additional downside in 2026.³² Brookings described the decline as “benign,” driven more by growth and monetary-policy expectations than by a collapse of confidence.²⁴

The dollar is losing value. How much further it slides will depend on whether tariff conflicts escalate or ease, how quickly the Iran-related energy shock fades, whether Congress addresses the fiscal trajectory, and how much foreign investors keep trusting U.S. assets. The dollar’s dominance has survived plenty of tests. This one, mixing trade disruption, war, political uncertainty, and mounting debt, is the toughest in recent memory.

1
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2
CNBC. ICE U.S. Dollar Index
3
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4
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5
MUFG Research. 2026 Annual Foreign Exchange Outlook
6
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7
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8
J.P. Morgan. Fed Rate Cuts
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Charles Schwab. Will the US Dollar Be Dethroned
10
Committee for a Responsible Federal Budget. What Would a Fiscal Crisis Look
11
Committee for a Responsible Federal Budget. Breaking Down the One Big Beautiful Bill
12
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13
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14
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15
Chatham House. US Energy Prices Were Set to Rise Long Before the Iran War
16
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17
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18
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19
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20
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21
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23
Bloomberg. Foreigners Rebuff ‘Sell America’ and Pour In a Net $1.5 Trillion
24
Brookings Institution. Is the US Dollar’s Reserve Currency Status Eroding
25
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26
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27
IISS. The Future of Dollar Dominance
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J.P. Morgan. Gold Prices
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Morgan Stanley. US Dollar Decline Continues Through 2026
31
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32
TD Economics. The US Dollar in 2025