The US dollar is on track for its worst year in modern history
112 comments
·July 4, 2025forgotoldacc
hnlmorg
I think the bigger problem is the reason why people are pulling back their money from US markets.
msgodel
European interest rates are crazy low, that's why.
Cthulhu_
Lower than their 2024 peak, but still much higher than before 2022 where for a long period it was at 0% or even negative interest (apparently, I don't know much about these things). It's at 2% or 2.4% at the moment, last time it was around that was in 2008. See https://www.ecb.europa.eu/stats/policy_and_exchange_rates/ke...
But I'm no economist and don't know what these numbers mean or what the consequences are.
presentation
The yen has other reasons to be weak though, namely that Japan barely increased interest rates as compared to the US.
corimaith
>it would mean every country is supporting the US at the cost of devaluing themselves.
That's what they want as export based economies.
forgotoldacc
Not when you get to the point where your currency is so devalued that importing raw materials necessary for those exports becomes expensive, and basics like food and fuel become unaffordable for locals, as is the case in Japan.
A balance is necessary, and things have been off balance recently.
littlestymaar
> Historically, the euro has generally been a good bit more valuable than the dollar. But in 2022, the dollar was more valuable than the euro at a point
That's what inflation does.
People are routinely taught that inflation is the “decline of value of money”, but that's not the reality. Inflation is just the increase in consumer price, which is perceived as a decline in the relative value of the money, but its absolute value on foreign markets isn't (directly) affected by inflation.
And when the Central bank raise the interest rate to cool the economy down and temper inflation, then the absolute value of the money rises (because the higher the interest rates, the pricier the currency on the FX market). This increase in the currency value in turn also helps fighting inflation because it lowers the cost of imported goods.
So, indirectly, because of the central bank's reaction, inflation is actually increasing the absolute value of money, and this is what we saw in 2022 when the Fed raised the interest rates 9 month or so before the ECB start doing the same (because the inflation came in advance for the US compared to EU).
timewizard
> the dollar has been insanely overvalued post-COVID.
That's an odd way of saying the US doubled it's federal budget from $3T to $6T in response to COVID and has now ensconced this pork further into law. Under a "republican" administration, no less.
> The dollar losing its value is a return to the pre-covid norm.
Which is to say that even $3T contained an unjustified amount of debt spending just not as obscene as it is today.
> It's a high that can't last forever.
That's the "big beautiful bill" for ya.
throw101010
> Under a "republican" administration, no less.
Are you under the impression that this is surprising? Republicans are consistently the ones spending more when they are in power. It's time to dispel this myth that they are fiscally "conservative", they have presented more unbalanced/defficitary budgets than Democrats and the latter in recent memories are the only ones who managed to present budget with surpluses, under Clinton.
mensetmanusman
It is a myth, there are only a few Republicans that organize around the concept of spending less.
Both sides of the gerontocracy are happy to improve their lives while not planting seeds for the future.
fakedang
It's fairly obvious the reason he put it in quotes was because the Republicans and conservative movements claim to be all about "fiscal prudence and discipline", when in reality they're the ones responsible for the ballooning deficit.
timewizard
Corruption has been compounding. Malicious business interests don't actually care which party has power. Just that they have access. It's telling that you have to reach back 30 years to find an example where the budget was balanced for one single year.
rayiner
What does “worst” mean in this context? Countries often want to keep their currency weak because it helps their exports: https://www.investopedia.com/trading/chinese-devaluation-yua... https://www.investopedia.com/terms/d/devaluation.asp
snovv_crash
From outside the US, all the 'stock market gains' have actually been zero or negative because of this. I wonder how long before inflation hits...
patrickhogan1
This is spot on and cuts both ways. Much of the Japanese market's recent "performance" in US media is actually just yen weakness against the dollar. Strip out currency effects and the story looks very different. Same with European markets "performance" - we're often seeing monetary policy divergence rather than genuine outperformance in foreign markets.
Always check both local currency and USD returns when evaluating international markets.
argsnd
European markets are doing fine in Euro terms aren’t they?
patrickhogan1
MSCI Europe is up about 8-9% in euros so far this year—roughly the same as the S&P 500 in dollars.
But the euro itself has climbed ~10% YTD vs the dollar (≈ $1.02 → $1.12-1.18). So you get an ~18% gain if you invest in MSCI Europe in dollars.
Europe hasn't "beaten" US stocks because its companies suddenly out-executed; most of the gap is the stronger euro.
Not that it matters who’s "winning." My gripe is with US headlines that shout "Japan stocks are on fire" or "Europe stocks are on fire," when what’s really happening is that global markets are rising together and currency swings make one region look better than another.
hx8
You should evaluate foreign market results based on your domestic currency. Here is the US centric example.
1. You exchange Dollars for Euros
2. You buy a stock in Euros
3. You hold the stock in Euros for a period of time
4. You sell the stock in Euros
5. You exchange your Euros for Dollars.
The difference in the exchange rate in step 1 and 5 can have a very large impact on your total return, often times a larger impact than step 3.
mindok
Not in Australia. Our dollar has taken a beating too. I guess digging holes and selling property to each other at ever higher prices isn’t that interesting to the rest of the economic world.
patrickhogan1
Australia printed a lot more money relatively than the US from COVID-19 until now, largely to capitalize on a booming commodities sector. A factor that led to some do weakness.
But I think any weakness is temporary. With a stable government and abundant natural resources that will be even more sought-after in an AI-driven world and largely insulated from automation Australia’s long-term prospects look strong.
mensetmanusman
The Hole just got 10 ft deeper!
actionfromafar
If that doesn't work, let's try "one part of the population chasing another part into concentration camps!" That'll attract investors.
lifestyleguru
Every empire starts with free labour. Cheap labour is too expensive.
defrost
Australia's already tried that one: https://en.wikipedia.org/wiki/Aboriginal_reserve
brummm
Lol, Australia and Canada seem to be very similar in this regard.
lifestyleguru
> I guess digging holes and selling property to each other at ever higher prices isn’t that interesting to the rest of the economic world.
Wow this is the case in most of the Europe too, what a coincidence. Fancy investing in our premium real estate?
mrweasel
Because stock market gains can't keep up with the lose of the dollars value? Assuming that you bought your stocks using Euros or some other currency?
rsynnott
Yeah, that's what they mean. Here's a euro-denominated S&P500 ETF: https://finance.yahoo.com/quote/CSPX.AS/
and a USD denominated one: https://finance.yahoo.com/quote/SPY/
Have a look at the 1 year view. Note the fairly dramatic difference.
CalRobert
If only it were easier to buy etfs that aren’t PFIC’s
rgmerk
It seems that no one is prepared to point out the obvious - devaluation of the dollar is a cut in American living standards.
pavlov
Tariffs and a devaluating currency are a double whammy of inflation on imports.
It will be reflected in overall inflation statistics, and that limits the Fed’s ability to cut rates.
mensetmanusman
Low derivatives of US gdp per capita growth over the past decade feels like stagnation to the population.
spencerflem
Totally agreed. My only hope is that the evil bastards who willed this to happen bear the suffering more.
jjav
They just gave themselves billions in tax cuts, so they'll be comfortable.
spwa4
It's 6500 billion dollars, generally referred to as "trillions".
A vote for Trump, as it turns out, was a vote to increase US national debt by double what anyone increased it by before (which was also Trump, so anyone saying they "didn't see this coming" ...)
corimaith
Those evil bastards are also most central bankers around the world that agree that the incredibly unbalanced balance of trade today needs to be rebalanced. America is consuming too much, and the world is saving too much. So yes, your living standards do need to go down for the sake of the greater global macroeconomic stability.
Contrary to what xkcd or NYT might tell you, actual economic institutions like the IMF and the World Bank are coigzant of the issues caused by the status quo and largely view the Trumpian diagnosis, if not the horrid execution, as correct.
munksbeer
> the incredibly unbalanced balance of trade
The US sells billions of dollars of digital services to the rest of the world each year. Did Trump and co include netflix, aws, azure, etc etc in their "unbalanced trade"?
StopDisinfo910
> Those evil bastards are also most central bankers around the world that agree that the incredibly unbalanced balance of trade today needs to be rebalanced.
No central bankers in the world ever said that including Powell. That’s Trump policy and Trump only.
SeanAnderson
https://i.imgur.com/LkclqgV.png
Here's how the US Dollar Index has performed over the last ~30 years. The swing looks pretty typical to me. If it drops another 10% (as the article says Morgan Stanley thinks it might) then I could see this event as an outlier. For now, I find it interesting but not especially concerning. There's pros and cons to having stronger/weaker currency. I think it's probably worse to have a volatile currency than an especially strong or weak one?
bbarnett
As a Canuck who has seen these swings for decades of his life, with both our currency and the US dollar both contributing to this, I see nothing unusual in the current trends.
I take it that the "on track" is determined by extending a current downtrend as if it will continue precisely the same, for the next 6 months, which seems unlikely.
I get that with the recent passage of this US bill, people want to pile on. I can assure you, that Canadians have no love of the current administration. But this is another click-baitish thing being done to us all, feeding on people's upset, the time of year it is, the US holiday, and more.
Ah well.
rokkamokka
Strike dollar from the title and it'll still be true...
0xy
The inflation of 2021-24 was a biblical disaster for the working class, and it's nowhere near as bad now. I'd say that makes 2025 a marked improvement from the economic disaster of the last 4 years, and which was backed up in every political poll (economy was issue 1).
the_third_wave
Approval poll numbers seem to indicate a plurality of US voters agree with much of what the current government is implementing and for the first time in a very long period the majority of US voters seems to think the country is on the right track. You may not like what Trump and his crew are doing but most people did not like what your preferred candidates were doing and planning to do. Given these numbers I'd say "your democracy" (which is a constitutional republic but I'll just borrow some of the oft-heard rhetoric from the "democratic" party) seems to be functioning quite well and certainly a lot better than under the previous regime when approval numbers were abysmal.
buckhx
What are you talking about? The admins current net approval rating is -6.9% https://www.natesilver.net/p/trump-approval-ratings-nate-sil... Biden was at a +5% net rating at this point in his term
mensetmanusman
Approval ratings are just measures of partisanship. Ideally it drops to zero. The fact that it was nearly 40% for a leader experiencing dementia-like symptoms confirmed this with political theoreticians.
qsort
Strike "the US" as well...
mensetmanusman
The Yen carry trade is unwinding and this activity will weaken the dollar because the arbitrage was propping up the dollar above its net value.
Meanwhile the CCP hasn’t unpegged their currency while they are experiencing deflationary price declines.
Yikes
almog
Trump and Bessent announced in the past week or so, that instead of terming out the debt, they'll ramp up refunding using T-Bills (max 52w duration) until Fed Chair Powell's term ends in 9 months. If they actually follow through on that (I suspect they just try to jawbone Powell), it could weaken the dollar even more.
patchule
Don’t they want a weaker dollar to bring manufacturing back to the US? If manufacturing jobs were up while service sector hiring fell, would that be proof that they are succeeding? Not good for the middle class, perhaps intentionally, but if you’re homeless and need a low skill manufacturing job you’re prospects are finally looking up.
patrickhogan1
DXY index - often what these news reports use when talking about the dollars decline is ~97 today—still stronger than the ~90 it finished 2014 at and almost the same as 2018.
Ask yourself, did you panic during these years? Mostly no. These were pretty good years.
black_puppydog
that index grew significantly in both those years...
patrickhogan1
Volatility is normal - the main point is the index was lower than it is today (meaning we had a weaker dollar than this blog post is referring to as problematic) and the result wasn’t chaos - the economy grew.
jamisteven
Entirely by design.
ggm
Cheaper dollar boosts US exports. Makes imports more expensive even before tarrifs. Which situationally, some industrial sectors will want. The exporting ones. The ones reliant on imports, less such.
The US isn't self sufficient in food. Food imports are going to get more expensive.
surgical_fire
> Cheaper dollar boosts US exports
Countries may be unwilling to trade with an increasingly belligerent US that slaps everyone with tariffs. In fact, many will just slap the US with tariffs and other barriers of their own.
mensetmanusman
The US produces ~4,000 calories per person per day and consumes ~2,500.
relaxing
US consumers don’t go to the grocery store for “calories”.
Ironic the side that likes to joke about the lack of choice in certain foreign supermarkets is going to create those conditions here at home.
throw101010
> Which situationally, some industrial sectors will want
No major US export sector operates exclusively as an exporter without any exposure to imports or global supply chains. Even the largest US exporting industries (oil and gas extraction, civilian aircraft and parts, and pharmaceuticals) rely in varying degrees on imported inputs, components, or capital equipment... which companies are you talking about?
ggm
I was talking about oil and gas mainly. I'm unsure if US steel is competitive with any other producer, it's probably ring-fenced markets only. I hadn't thought about their exposure to imports on the production side, your point is good.
lifestyleguru
> boosts US exports
The world doesn't need that much guns and missiles. There are two major markets currently and that's all mostly.
clarionbell
US doesn't just make weaponry but let's roll with that. You said there are two major markets now, I assume you mean Europe, that is the most wealthy continent, and Middle East one of the most awash with cash regions in the world.
You may be tempted to assume that only active participants in wars buy weapons, but that has never been the case. And especially now, you have many countries trying to restock and prepare.
reissbaker
Guns and missiles don't even make it into the top five U.S. export categories. The largest good exported is civilian aircraft parts, although it pales in comparison to business services exported (>$200B) and financial services (~$175B).
throwaway29447
> The world doesn't need that much guns and missiles.
Yet they seem to be begging for them pretty hard.
fpmatwork
Does this mean EU tech workers are now even more expensive for US companies?
rockmeamedee
yeah but they're still >50% off SFBA salaries. SFBA comp for a sr dev can easily be $200k+ (and can go higher, lots of anecdotes on here about $350k+ salaries at BigtechCos), for an EU dev scratching 90k euro is considered "good". Devaluing the dollar by 10% and increasing the price of EU salaries by 10% doesn't really change the picture.
zelag
In most cases EU tech workers that work remotely for a US company get their invoices paid in USD (same with the outsourcing agencies), so I'd say no.
CalRobert
Pretty normal to have a contract in euros if you’re using e.g. remote.com
foldr
Yes, but they may ask for more USD than they would if the dollar were stronger against the Euro.
FiniteIntegral
It really says something when the instability of the dollar is (relatively) as bad as when Nixon took us off the Gold Standard in 1973. Trump's policies certainly have caused a large amount of instability.
peterbecich
More about this: https://en.wikipedia.org/wiki/Nixon_shock
zorton
It's easy to blame an individual administration but the reality is pure fiat currencies will always end in this way. When was the last time the US had a balanced budget? Clinton? If you don't have a constraint on printing new currency you will always print more.
A good example I heard today was this. Imagine if you have a legit money printer. Show me the most pure human and eventually they will hit that button and print new money. That's what we've been doing for a long time now to finance all the wars and bailouts.
https://fred.stlouisfed.org/series/M2SL
A good book: https://www.lynalden.com/broken-money/
PartiallyTyped
It isn't just one administration. There's quite a bit of consistency over which administrations are "good" for the economy and the people, and which are "bad".
Looking at the scale of a few years, the dollar has been insanely overvalued post-COVID.
Historically, the euro has generally been a good bit more valuable than the dollar. But in 2022, the dollar was more valuable than the euro at a point. Recently it's been bouncing around at nearly 1 euro=1 dollar.
Then there's the yen. Used to bounce around between 1 dollar = 100~110 yen. Recently reached 1 dollar = 162 yen.
The dollar losing its value is a return to the pre-covid norm. Lots of countries pumped money into the US to make money off skyrocketing stocks and high interest rates, and now they're pulling it back into their countries. It's a high that can't last forever. And if it did last forever, that would not be good for the world as a whole since it would mean every country is supporting the US at the cost of devaluing themselves.