Currency Concerns: Two Reasons Why the US Dollar May Derail Further

The U.S. Dollar\'s Decline in 2025 is sending ripples across global markets. Investors, traders, and policymakers are concerned. The dollar, once seen as the world’s reserve currency, faces increasing headwinds. All of the uncertainty around the dollar runs counter to a global financial market that has long seen U.S. currency as the safest bet around.

Is the USD Downstretch Becoming More Serious?

Here are two popular reasons why the USD downstretch may become more serious soon. Investors and fund managers believe there is further room for the US dollar to fall. The decline in the US dollar is attributed to the Federal Reserve’s approaching peak. Foreigners own US stocks and bonds worth $30 trln, much of it unhedged. Doubts over the greenback’s status threaten to leave global pension funds and insurers with an unwanted currency risk.

1. Structural Shifts in the US Economy

We expect the USD to continue weakening due to structural shifts in the US economy: the new White House’s longer-term strategy is to pivot the US economy from services. This shift, while potentially beneficial in the long run, could create short-term economic instability and a decrease in foreign investment, impacting the dollar\'s strength.

2. Concerns Over Global Reserve Currency Status

The dollar’s decline in value this year has been accompanied by a series of alarm bells that it may lose its status as a global reserve currency if other nations decide to diversify their holdings into other currencies or assets. This loss of confidence could lead to a rapid and significant devaluation of the dollar.

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