The prominence of the US dollar is appearing to wane?
The US dollar, the global reserve currency, is showing signs of a turn, as stated by Charlie Morris at ByteTree. This shift comes amidst a backdrop of rising US public debt, annual deficits, and investor concerns about fiscal sustainability and governance uncertainty.
Historically, higher US interest rates have bolstered the dollar by attracting capital. However, in 2025, even as the Federal Reserve tightened, the dollar weakened broadly, signaling a shift in investor priorities from yield to fiscal risk and credibility.
The reintroduction of tariffs in 2025 created market stress, triggering equity dips, rising bond yields, and dollar declines. The Euro’s bullish outlook, driven by increased EU government and German spending, has been a significant factor in dollar weakness in 2025. Since the Euro represents 57% of the Dollar Index basket, Euro strength has outsized effects.
Market sentiment and risk appetite have also played a role, with investors showing caution toward dollar-based investments amid policy incoherence and global uncertainties.
Looking ahead to 2030, economists project the dollar will soften against the Euro and British Pound, with EUR/USD possibly rising above 1.30 by 2026 and further by 2030, and GBP/USD weakening after 2026. USD/JPY and USD/CAD are also expected to gradually weaken over the next five years, indicating a broader USD softness in global FX markets.
The US elections in November could have a significant impact on the price of the US dollar. If elections produce policy uncertainty or governance concerns, it could weigh negatively on the dollar, increasing risk premia and depreciation pressure. Conversely, elections that restore perceived policy coherence, fiscal discipline, or strengthen economic growth prospects could stabilize or strengthen the dollar.
The US dollar's future trajectory depends heavily on investor perceptions of US fiscal governance, interest rate differentials, geopolitical trade policies, and the economic policy direction signaled by upcoming US elections. Markets are particularly sensitive to governance uncertainty and tariff conflicts, which can overshadow traditional drivers like interest rate hikes.
Dominic Frisby, the author of The Flying Frisby investment newsletter, predicts that we are likely to be in the latter stages of a topping process for the US dollar. The dollar is currently oversold, and it faces major challenges in the years ahead from potential alternatives like the Chinese yuan, a gold-backed currency, or a petrocurrency.
The US dollar determines global capital flows, and commodities such as oil, copper, gold, and wheat are priced in US dollars. International debt is mostly traded in US dollars, and the US dollar index tracks the dollar against the currencies of America's main trading partners, including the euro, Swiss franc, Japanese yen, Canadian dollar, British pound, and Swedish krona.
As the US Federal Reserve chairman, Jerome Powell, has indicated that the central bank is now ready to start cutting rates, the market is divided as to whether the first rate cut will be 0.25 or 0.5 percentage points.
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[1] Morris, C. (2025). The US Dollar is a Bubble. ByteTree. [2] Economist Intelligence Unit. (2025). Global Forecasts 2026-2030. Economist. [3] Frisby, D. (2025). The Flying Frisby. Issue 123. [4] International Monetary Fund. (2025). World Economic Outlook Update. IMF.org.
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