In 2025, the US dollar suffered its largest annual drop in eight years. While some in the Trump administration continue to insist the White House believes in maintaining a “strong dollar,” investors don’t appear to be 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% drop seen in 2025.
“Fundamentally, we think the recent injection of policy uncertainty will be sufficiently durable to keep the Dollar from making up lost ground,” foreign exchange strategists at Goldman Sachs wrote in a recent client note.
“Investors came into the year expecting more support for the economic cycle, but instead a series of new tariff threats have shaken those expectations.”
In the days after President Trump first announced his “Liberation Day” tariffs last April, the US dollar, long the bastion of the global economy, fell more than 5%. Nearly a year later, the greenback has yet to recover these losses.
The dollar has for decades been viewed as the world’s reserve currency, often referred to as an “exorbitant privilege” enjoyed by the US. This status has seen the dollar — and dollar-denominated assets — serve as a safe haven during market turmoil.
“If the reserve status of the USD does depend on the US role in the world — as guarantor of security and a rules-based order — then the events of the past year … carry the seeds of a reallocation away from the USD, and the search for alternatives,” said Thierry Wizman, global and foreign exchange rate strategist at Macquarie Bank.
The market is also evaluating the potential shifts 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 stretch at the Federal Reserve during the 2008 financial crisis, news of his nomination only briefly bolstered the dollar as investors priced in potential aggressive rate cuts from a Warsh-led Fed.
In comments to NBC News, President Trump said he wouldn’t have nominated Warsh to be the Fed chair if Warsh had expressed any interest in raising rates.
“If he came in and said, ‘I want to raise them’ … he would not have gotten the job, no,” Trump said on Feb. 4. There is “not much” doubt the Fed would lower rates because “we’re way high in interest,” the president said.
Still, the dollar remains the anchor of the international financial system, but traders are increasingly looking for hedges elsewhere — from the euro to the Swiss franc to gold — as geopolitical risk and policy uncertainty rise. And especially given that the source of this uncertainty often comes from the US administration.
“We do not think that over the medium- and long term the USD ‘diversification trade’ is over,” Macquarie’s Wizman said, noting that weak US dollar waves, “usually prompted by important geopolitical shifts and policy uncertainty in the US,” can last for a decade or longer.
“Under the direction in which the US administration seems to want to take the US vis-a-vis the rest of the world, the USD cannot maintain its reserve currency status indefinitely,” Wizman said.
Gold (GC=F) appreciated north of 60% through 2025 in one of its 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 industrial products copper (HG=F) and steel (HRC=F), have also continued to surge higher alongside gold through the start of 2026.
