The White House says it wants a strong US dollar. Investors are still keeping their distance.
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 moresupport 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.
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.
“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.
Kevin Warsh speaks about his report on transparency at the Bank of England, in London, on Dec. 11, 2014. (AP Photo/Alastair Grant) ·ASSOCIATED PRESS
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.
“A key accelerant behind the renewed demand for hard assets has been the US dollar,” Saxo Bank head of commodities Ole Sloth Hansen wrote in a recent client note. Concerns around US stability and a growing outflow of capital into other markets, Hansen said, are only “adding to an already fragile backdrop for the currency.”
Other major currencies, including the euro, pound, and Swiss franc, have also spent the past month rallying against the dollar. So have more risk-on emerging-market currencies that typically trade at a steep discount to the dollar, from the Brazilian real to the Mexican peso to the South African rand.
It’s likely too early to call the movements in FX pairings as signs of dollar debasement, economists at Bank of America said in a recent client note. The firm argued that in a true debasement scenario, investors would see the dollar in a prolonged drawdown alongside falling valuations in other US-based financial assets.
Even so, recent moves show nascent signs of differing from cyclical currency swings and suggest larger structural changes in investor preferences. And the dollar may have more room to fall, BofA argued, as the “fundamental drivers” of dollar weakness — such as a dovish pivot from the Fed and the lagging impact of trade wars with Europe and China — have yet to play out.
“At present, there are no good alternatives to the dollar for a global currency, not even the euro or renminbi,” and “the US still has the world’s deepest and most liquid open capital markets,” Steven Kamin, previously the head of international finance at the Federal Reserve, wrote in a recent column for the Financial Times.
“But whereas a few years back, one would have been hard-pressed to foresee a world without dollar dominance,” he added, “now one can readily imagine such a disorder emerging in the coming decades.”
Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at jake.conley@yahooinc.com.
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