As of mid-June 2025, the US dollar is facing severest year-to-date declines (more than 9%) in over three decades. This year’s slide places 2025 among the worst starts in the index’s history—comparable to major downturns like 1985, when the DXY plunged after the Plaza Accord, or 2003, when widening fiscal deficits and geopolitical uncertainty weighed heavily on sentiment. In contrast, the dollar has historically rallied during periods of aggressive Fed’s tightening or global risk aversion, as was seen in standout years like 1984, 2014, and more recently in 2022. What began this year as a mild pullback has accelerated into a broad-based decline, with the DXY recently breaching the 98 mark and struggling to regain momentum.

Much of the dollar’s weakness stems from a recalibration of macro expectations. With the Fed’s hiking cycle now seemingly behind, markets are fully pricing in rate cuts in the second half of the year. Softer labour market data, sluggish manufacturing output, weaker-than-expected retail sales have added weight to that view. Inflation is moderating near the Fed’s 2% target, giving room for policy easing; though tariff induced inflation risk have added a layer of caution to the Fed’s forward guidance. Despite resilient wage growth underpinning consumer spending, the broader narrative has shifted toward a moderating economy, prompting markets to reassess the dollar’s yield advantage.

Beyond rates, the dollar is also losing its historical safe-haven status. Even as the conflict between Israel and Iran escalated sharply—triggered in part by President Trump’s aggressive rhetoric toward Tehran—the dollar's safe-haven bid has remained modest. Its traditional appeal as a geopolitical hedge is being questioned, with flows favouring gold, the Swiss franc, and select emerging markets instead.

Technically, the dollar has breached key support levels, with the next major floor near 95. While DXY saw a brief rebound to 98.6 midweek, the broader trend remains weak. With markets focused on the Fed’s guidance amid growing tariff risks and soft data, the dollar’s slide may extend further—cementing 2025 as a potential turning point in its post-pandemic strength.