On July 1, the US dollar dropped to its weakest level against the euro since September 2021. On the flipside, the euro surged 13.8% in the first half of 2025
The return of Donald Trump to the White House in early 2025 has sparked more than just political tremors, shaking the global currency markets. The US dollar has dropped 10% since the start of the year, marking its worst half-year performance since 1973, the year currencies first began floating freely.
On July 1, the greenback fell to its lowest level against the euro since September 2021, a sign of faltering investor confidence. The euro now trades at $1.179, up 13.8% in the first half of 2025, marking it’s strongest-ever H1 performance, according to Reuters.
“The dollar just had the worst first half of any year since 1973. And 1973 is when currencies started floating. So effectively the worst half year ever,” said Harsh Gupta Madhusudan, Fund Manager at Ionic Asset by Angel One. “It’s hard to stress what a contrarian call this was back in December 2024 and January 2025.”
The US dollar’s weakness has been driven largely by Trump’s unpredictable trade and economic policies. Repeated flip-flops on tariffs and fresh spending plans have stoked fears over an uptick in inflation and a ballooning US debt burden.
More recently, it has been Trump’s multi-trillion-dollar spending bill that has rattled financial markets, intensifying fears of fiscal instability. Investors are now pricing in a faster pace of monetary policy easing by the Federal Reserve, amid fears of a potential slowdown in US economic growth.
The pressure has seen the dollar index, which tracks the greenback against a basket of six major currencies, slip to 96.688, its lowest since February 2022. Meanwhile, the yen has strengthened 9% year-to-date, its best performance since 2016, and sterling remains steady at $1.3737, near a three-and-a-half-year high.
Investors are also increasingly wary of Trump’s constant jibes at Fed Chair Jerome Powell, threatening the central bank to slash interest rates. Trump has publicly flagged Fed Chair Jerome Powell to cut rates, even sending him a handwritten note listing global interest rates, insisting the US rate should sit between Japan’s 0.5% and Denmark’s 1.75%.
Though Trump lacks the authority to remove Powell over policy disagreements, he hasn’t gone easy on his public attacks, with his recent calls for the Fed Chair to quit. Trump’s public criticism of the Fed and Powell has raised concerns about the US central bank’s independence, further denting confidence in the dollar.
Meanwhile, the path ahead also looks foggy. With the July 9 deadline looming for Trump’s sweeping tariffs, global markets have shifted on edge. With only a few formal trade deals materialised so far, investors are more worried about the future of trade tariffs and its impact on the global economy.
Back home, the US Senate remains divided over Trump’s tax-cut and spending proposals, which are expected to add $3.3 trillion to the national debt. The delay in passing the bill is only adding to investor uncertainty.
Despite the current slump, Madhusudan sees the dollar’s weakness as part of a larger cyclical shift. “Nothing moves in a straight line,” he said, “but more cyclical dollar weakness seems likely in the years ahead.”
That, according to Madhusudan, could turn out to be a tailwind for Indian growth and emerging markets, which typically benefit from a softer dollar and risk-on investor flows.