strip the US government of its top credit score<\/a> in May, have slowed US growth prospects this year and dented the demand for its currency.<\/p>\nThe dollar has also trended down on expectations that the Federal Reserve will cut interest rates to support the United States\u2019 economy, urged on by Trump, with two to three reductions expected by the end of this year, according to levels implied by futures contracts.<\/p>\n
Is the US becoming a \u2018less attractive\u2019 destination?<\/p>\n
Owing to its dominance in trade and finance, the dollar has been the world\u2019s currency anchor. In the 1980s, for instance, many Gulf countries began pegging their currencies to the greenback.<\/p>\n
Its influence doesn\u2019t stop there. Though the US accounts for one-quarter of global GDP, 54 percent of world exports were denominated in dollars in 2023, according to the Atlantic Council.<\/p>\n
Its dominance in finance is even greater. About 60 percent of all bank deposits are denominated in dollars, while nearly 70 percent of international bonds are quoted in the US currency.<\/p>\n
Meanwhile, 57 percent of the world\u2019s foreign currency reserves \u2013 assets held by central banks \u2013 are held in dollars, according to the IMF.<\/p>\n
But the dollar\u2019s reserve status is supported by confidence in the US economy, its financial markets and its legal system.<\/p>\n
And Trump is changing that. Karsten Junius, chief economist at Bank J Safra Sarasin, says \u201cinvestors are beginning to realise that they\u2019re over-exposed to US assets.\u201d<\/p>\n
Indeed, foreigners own $19 trillion of US equities, $7 trillion of US Treasuries and $5 trillion of US corporate bonds, according to Apollo Asset Management.<\/p>\n
If investors continue to trim their positions, the dollar\u2019s value could continue to come under sustained pressure.<\/p>\n
\u201cThe US has become a less attractive place to invest these days\u2026 US assets are not as safe as they used to be,\u201d Junius told Al Jazeera.<\/p>\n
What are the consequences of a lower-value dollar?<\/p>\n
Many within the Trump administration argue that the costs of the US dollar\u2019s reserve status outweigh the benefits \u2013 because that raises the cost of US exports.<\/p>\n
Stephen Miran, chair of Trump\u2019s Council of Economic Advisers, has\u00a0said high dollar valuations place \u201cundue burdens on our firms and workers, making their products and labour uncompetitive on the global stage\u201d.<\/p>\n
\u201cThe dollar\u2019s overvaluation has been one factor contributing to the US\u2019s loss of competitiveness over the years, and\u2026 tariffs are a reaction to this unpleasant reality,\u201d he added.<\/p>\n
At first blush, a lower dollar would indeed make US goods cheaper to overseas buyers and make imports more expensive, helping to reduce the country\u2019s trade deficits. However, these typical trade effects remain in flux due to ongoing tariff threats.<\/p>\n
For developing countries, a weaker greenback will lower the local currency cost of repaying dollar debt, providing relief to heavily indebted countries like Zambia, Ghana or Pakistan.<\/p>\n
Elsewhere, a weaker dollar should boost commodity prices, increasing export revenues for countries exporting oil, metals or agricultural goods such as Indonesia, Nigeria and Chile.<\/p>\n
Have other currencies done well?<\/p>\n
Since the start of Trump\u2019s second term in office, the greenback\u2019s slide has upended widespread predictions that his trade war would do greater damage to economies outside the US, while also spurring US inflation \u2013 strengthening the currency against its rivals.<\/p>\n
Instead, the euro has risen 13 percent to above $1.17 as investors continue to focus on growth risks inside the US. At the same time, demand has risen for other safe assets like German and French government bonds.<\/p>\n
For American investors, the weaker dollar has also encouraged equity investments abroad. The Stoxx 600 index, a broad measure across European stocks, has risen roughly 15 percent since the start of 2025.<\/p>\n
Converted back into dollars, that gain amounts to 23 percent.<\/p>\n
Meanwhile, inflation \u2013 again belying predictions \u2013 has come down from 3 percent in January to 2.3 percent in May.<\/p>\n
According to Junius, there is no significant threat to the dollar\u2019s status as the world\u2019s de facto reserve currency anytime soon.<\/p>\n
But \u201cthat doesn\u2019t mean that you can\u2019t have more of a weakening in the US dollar,\u201d he said. \u201cIn fact, we continue to expect that between now and the end of the year.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"The United States dollar has had its worst first six months of the year since 1973, as President…\n","protected":false},"author":2,"featured_media":229512,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5311],"tags":[2825,32,1700,13641,3663,3058,12,1219,49,978,659],"class_list":{"0":"post-229511","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-united-states","8":"tag-debt","9":"tag-donald-trump","10":"tag-economy","11":"tag-explainer","12":"tag-financial-markets","13":"tag-international-trade","14":"tag-news","15":"tag-trade-war","16":"tag-united-states","17":"tag-us","18":"tag-usa"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/114778449109216674","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/229511","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=229511"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/229511\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/229512"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=229511"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=229511"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=229511"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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