Predictions of the dollar’s imminent collapse have been greatly overstated.
While the U.S. dollar has experienced some depreciation this year, largely influenced by recent tariff measures, its position remains resilient.
Measured against common benchmarks, the dollar has dropped significantly—nearly 9 percent against the euro this year, and the U.S. Dollar Index, which tracks the dollar against six major currencies, has declined close to 8 percent.
Concerns over the expanding U.S. budget deficit have made investors cautious about holding U.S. government bonds. Furthermore, trade tariffs and a departure from traditional diplomatic approaches have weakened the dollar’s and Treasury bonds’ roles as cornerstones of the global financial system. This shift has benefited the euro, German government bonds, and gold, accelerating trends that have been developing for several years, which has not been favorable for the dollar.
Nonetheless, from other perspectives, the dollar maintains strength. It has held steady against numerous currencies and remains highly valued despite recent declines. Crucially, there is no clear alternative currency poised to replace it. The dollar and U.S. Treasury bonds continue to play indispensable roles in international trade and finance, as well as in investment portfolios.
Diversifying investments globally remains a prudent strategy, with the euro potentially gaining increased significance in the years ahead compared to its past two decades.
However, it is premature to abandon confidence in the dollar or U.S. Treasury securities.
Contextualizing Current Market Volatility
This year has been marked by high volatility. Following announcements of historic tariff hikes, numerous countries have expressed doubts about the reliability of the United States as a partner. For example, Canada recently elected a prime minister, Mark Carney, who vowed not to yield to the aggressive policies of its former ally. He stated, “There will never be capitulation to such pressures. Nonetheless, we must acknowledge that the global landscape has fundamentally transformed.”
