You’ve likely heard about the U.S. dollar’s decline in value versus other major world currencies in 2025. I’ll try to explain what has happened, why, what you might expect in the coming months, and what, if anything, you can do to protect yourself or benefit from this trend.
As a backdrop, the U.S. dollar has long been considered a safe-haven type of asset. When capital markets are turbulent and investors are nervous, they have often looked to the U.S. currency for some degree of security based on the strength of the U.S. economy and the dollar’s dominant role in foreign trade.
Also, sometimes when a majority of people believe something, their actions reinforce that belief. So, as long as most investors believe the U.S. dollar is a safe haven and they support that through their actions, those actions reinforce that belief. But what happens if and when they change their beliefs and behavior?
Leading up to 2025, the dollar had been on a long-term rise, gaining roughly 40% in value since 2010 relative to other major currencies. This made imported goods and foreign travel cheaper for us Americans.
Then things changed as the Trump administration went from being viewed as business-friendly to unpredictable. The talk of sudden widespread tariffs followed by revisions to those tariffs has created a great amount of uncertainty since Inauguration Day in January.
Down 11% from January to June
As a result, the dollar lost 11% of its value versus other major currencies in the first six months of 2025, its worst decline for the first half of a year since 1973, when President Nixon disconnected the value of the dollar from the price of gold.
Adding to the volatility and uncertainty regarding the rise in U.S. tariffs, concerns rose over the risk of stagflation, a stubborn and challenging condition that occurs when inflation coincides with economic weakness. On top of that, the large tax bill passed by the U.S. Congress in early July is expected to cause U.S. debt to increase over the next 10 years.
If you were a foreign investor, would you seek to invest in this type of environment or would you be more inclined to keep your money in other, more stable and attractive currencies and financial markets? When foreign investors sell U.S. stocks or bonds and use the proceeds to invest elsewhere, the supply of dollars increases and the demand for dollars drops. The overall result is typically a weaker dollar.
Impact on consumers, businesses, and investors
How does the devaluation of the U.S. dollar affect individuals and businesses? Well, there are distinct groups of winners and losers.
Among the losers are American tourists traveling abroad as their dollars buy less of another currency. That means everything costs more. For example, a week at a hotel that cost the equivalent of $2,000 at the beginning of the year now might cost $2,200. U.S. consumers also lose because imported products now cost more, and that’s on top of the inflationary impact of tariffs, which we’re just beginning to see.
However, there are also winners. They include U.S. multinational companies that export many of their products, which are now priced more attractively compared to their competitors.
As investors, it’s generally helpful to be diversified. If you own shares of U.S. companies – directly or indirectly, through funds – your risk can be reduced by owning some foreign stocks. It can be reduced even further by owning some gold, whose price tends to increase as the value of the U.S. dollar drops.
What can we expect now?
It’s dangerous to make predictions. Did anyone see the COVID pandemic happening before early 2020? Also, can anyone truly predict, with any accuracy, what Aspen’s snow conditions will look like from year to year?
With that said, some Wall Street firms are forecasting that the dollar could lose another 10% of its value by December 2026. That’s due to ongoing U.S. policy uncertainty and the growing impact of U.S. tariffs. Remember what I previously said about expectations and the self-fulfilling prophecy. If the prevailing wisdom is that the dollar is no longer a safe haven, how can that tide be turned back?
As for the long term, however, no one can say with any confidence whether this current trend will become a persistent phenomenon.
So, how can you protect yourself in this environment? As with so much in the world of personal finance and investment, staying calm and remaining diversified can go a long way. If you have plans to travel abroad, brace yourself for higher prices.
As a consumer, always stay informed and make thoughtful choices. And appreciate that economic cycles are normal. What goes up and comes down tends to go back up again…eventually.