The US dollar is facing its weakest annual start since 2008, with the Dollar Index (DXY) down more than 4% year-to-date, as markets recalibrate expectations around Federal Reserve rate cuts, resurgent protectionist trade policies, and geopolitical tensions.
Despite these pressures, investors appear to underestimate the long-term implications of the currency’s erosion as the world’s dominant reserve asset, warns Nigel Green, CEO of deVere Group, a global financial advisory firm.
“This isn’t a temporary dip but the beginning of a structural shift in global finance,” Green said. “The dollar’s supremacy isn’t disappearing overnight, but its unchallenged hegemony is fading.” The International Monetary Fund (IMF) reports the dollar’s share of global reserves has dropped to under 59%, down from over 70% at the start of the century, as central banks diversify holdings amid geopolitical and economic recalibrations.
The euro has surged 4% against the dollar in recent weeks, bolstered by Europe’s strides toward fiscal coordination and collective defense spending. “The euro is evolving into a global stabilizer, not just a regional anchor,” Green noted, emphasizing its growing role in reserve portfolios. Meanwhile, Asian currencies like Japan’s yen and China’s yuan are gaining traction, with Beijing advancing cross-border trade agreements that bypass the dollar entirely.
At home, the dollar faces headwinds as markets price in up to three Fed rate cuts this year, narrowing the yield advantage that long attracted global investors to US Treasuries. “As demand for Treasuries softens, so does demand for dollars,” Green explained. While a weaker dollar could boost US exports and multinational earnings, nearly half of US goods are imported, raising risks of higher input costs, inflation, and consumer strain.
Recent US tariffs have paradoxically strengthened the Canadian dollar and Mexican peso, as investors interpret protectionism as a sign of economic instability rather than strength. “Policies that once supported the dollar now contribute to its fragility,” Green added.
No single currency is poised to replace the dollar, according to analysts. Instead, a multipolar system is emerging, with the euro, yuan, and others sharing influence. “We’re moving toward a mosaic of major currencies,” Green said. “This shift is gradual but profound, requiring investors to rethink portfolio strategies.”
Historically, the dollar’s resilience has been underpinned by its role in global trade and liquidity. However, geopolitical tensions and the weaponization of dollar-denominated sanctions have spurred alternatives. For instance, BRICS nations are exploring trade mechanisms in local currencies, while gold purchases by central banks hit record levels in 2023.
The transition carries risks and opportunities. Companies and governments that adapt pricing, trade terms, and capital allocation stand to gain first-mover advantages. Conversely, those clinging to dollar-centric models may face volatility as capital rotates into assets tied to rival currencies.
While the dollar remains integral to global finance, its diminishing dominance underscores a broader recalibration of economic power. Investors underestimating this trend, Green warns, risk exposure to unanticipated market shifts. “The era of unquestioned dollar supremacy is ending. Preparation, not complacency, will define success in this new landscape.”
As the Fed navigates rate policy and geopolitical fissures deepen, the dollar’s trajectory will hinge on balancing domestic economic stability with evolving global realities. For now, the currency’s gradual decline serves as a bellwether for a world increasingly wary of overreliance on a single financial pillar.
