In 2025, the US dollar suffered its biggest annual decline in eight years. While some in the Trump administration continue to insist that the White House believes in maintaining a “strong dollar,” investors don’t seem convinced.
Even with a rally in recent days, the dollar index (DX-Y.NYB) remains down about 1% from where it started the year, adding to the 9% decline seen in 2025.
“In principle, we believe the recent injection of political uncertainty will be durable enough to prevent the dollar from recovering lost ground,” currency strategists at Goldman Sachs wrote in a recent client note.
“Investors came into the year expecting moresupport for the business cycle, but instead a series of new tariff threats have shaken those expectations.”
In the days after President Trump first announced his “Deliverance Day” tariffs last April, the US dollar, the bulwark of the global economy, fell more than 5 percent. Almost a year later, the greenback has yet to recoup those losses.
The dollar has been seen for decades as the world’s reserve currency, often cited as an “exorbitant privilege” enjoyed by the US. This status has made the dollar—and dollar-denominated assets—serve as a safe haven during market turbulence.
“If the USD’s reserve status depends on the US’s role in the world – as a guarantor of security and a rules-based order – then the events of the past year … are sowing the seeds of a reallocation away from the USD and a search for alternatives,” said Thierry Wizman, global and currency strategist at Macquarie Bank.
Read more: How a weaker dollar could affect your wallet
The market is also assessing potential changes in US monetary policy from President Trump’s nominee to replace Fed Chair Jerome Powell, former Fed Governor Kevin Warsh.
While Warsh, an avowed monetary hawk, spent his first stint at the Federal Reserve during the 2008 financial crisis, news of his appointment only briefly supported the dollar as investors gauged potential aggressive rate cuts from a Warsh-led Fed.
In comments to NBC News, President Trump said he would not have nominated Warsh to be Fed chairman if Warsh had expressed any interest in raising rates.
“If he had come in and said, ‘I want to raise them’ … he wouldn’t have gotten the job, no,” Trump said on Feb. 4. “There’s not much” doubt that the Fed will cut rates because “we have a lot of interest,” the president said.
Kevin Warsh talks about his transparency report at the Bank of England in London on December 11, 2014. (AP Photo/Alastair Grant) ·THE ASSOCIATED PRESS
However, the dollar remains the anchor of the international financial system, but traders are increasingly looking elsewhere for hedges – from the euro to the Swiss franc to gold – as geopolitical risk and policy uncertainty rise. And especially considering that the source of this uncertainty often comes from the US administration.
“We don’t believe that in the medium to long term the USD ‘diversification trade’ is over,” Wizman told Macquarie, noting that weak waves in the US dollar, “typically triggered by major geopolitical changes and US policy uncertainty,” can last a decade or more.
“In the direction the US administration seems to want to take the US vis-à-vis the rest of the world, the USD cannot maintain its status as a reserve currency indefinitely,” Wizman said.
Gold (GC=F) appreciated north of 60% by 2025 in one of the strongest rallies on record. It’s still up more than 70% over the past year, despite a recent pullback.
Other metals, including precious metals silver (SI=F) and platinum (PL=F), as well as industrials copper (HG=F) and steel (HRC=F), also continued to grow alongside gold through early 2026.
Read more: Thinking of buying gold? Here’s what investors should be looking for.
“A key accelerator behind renewed demand for hard assets has been the US dollar,” Saxo Bank’s head of commodities Ole Sloth Hansen wrote in a recent note to clients. Concerns about US stability and a growing outflow of capital to other markets, Hansen said, only “add to an already fragile backdrop for the currency.”
Other major currencies, including the euro, pound and Swiss franc, have also spent the past month rising against the dollar. So you have more risk in emerging market currencies, which typically trade at a deep discount to the dollar, from the Brazilian real to the Mexican peso and the South African rand.
It’s probably too early to call moves in currency pairs signs of dollar degradation, Bank of America economists said in a recent note to clients. The firm argued that in a true downgrade scenario, investors would see the greenback in a prolonged decline, along with falling valuations of other US financial assets.
Even so, recent moves show early signs of diverging from cyclical currency swings and suggest larger structural changes in investor preferences. And the dollar could have more room to fall, BofA argued, because the “fundamental drivers” of dollar weakness — such as an accommodative pivot from the Fed and the delayed impact of trade wars with Europe and China — have yet to play out.
“There are currently no good alternatives to the dollar for a global currency, not even the euro or the renminbi,” and “the US still has the deepest and most liquid open capital markets in the world,” wrote Steven Kamin, formerly head of international finance at the Federal Reserve, in a recent column for the Financial Times.
“But while a few years ago one would have been hard-pressed to foresee a world without dollar dominance,” he added, “now we can easily imagine such turmoil emerging in the coming decades.”
Jake Conley is a breaking news reporter covering US stocks for Yahoo Finance. Follow X at @byjakeconley or email at jake.conley@yahooinc.com.
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