U.S. Dollar Sees Sharpest Half-Year Decline in 52 Years: What’s Driving the Slide?

In a historic downturn, the U.S. dollar has plunged 11% so far this year—marking its steepest half-year decline since 1973. According to the New York Intercontinental Exchange (ICE), the dollar index currently stands at 98.57, raising concerns across global financial markets. Despite partial recovery in the U.S. economy, Wall Street experts warn that the dollar’s weakness may persist for an extended period.

Why Is the Dollar Index Falling?

The ICE Dollar Index, which measures the dollar’s value against six major currencies including the Euro, Yen, and Pound, has dropped more than 9% since the beginning of the year. Although it rebounded slightly from a July low of 96.22, the current level of 98.57 is still considered weak compared to previous years.

• Economic Growth vs. Currency Pressure: The U.S. economy is projected to grow by approximately 3% in Q3. Foreign investors have resumed purchasing American assets since May, offering some support to the dollar.
• Interest Rate Advantage: Long-term U.S. interest rates remain above 4%, higher than those in Europe and Japan, which has helped cushion the dollar’s fall.
• Global Currency Movements: The Japanese Yen has weakened due to expectations surrounding Sanae Takaichi’s potential rise to Prime Minister. Meanwhile, political instability in France has pressured the Euro. These factors have temporarily eased the dollar’s decline.

Wall Street Forecasts: More Decline Ahead

Leading investment banks believe the recent recovery is merely a technical rebound. Morgan Stanley states that the “Dollar Strength Cycle,” which began in 2010, has now ended. The bank predicts an additional 10% drop in the dollar’s value by the end of 2026, citing convergence in growth and interest rates between the U.S. and other developed economies.

Goldman Sachs echoes this sentiment, suggesting the dollar could fall further in the coming months. ING Bank adds that if the Federal Reserve adopts a more dovish stance following recent rate cuts, the dollar’s decline could accelerate.

Diverging Views: Is Stability on the Horizon?

Not all analysts agree. Ned Davis Research argues that the real interest rate gap between the U.S. and the Eurozone has narrowed significantly. Additionally, based on Purchasing Power Parity (PPP), the dollar is no longer overvalued. This could mean the currency may move sideways in the coming months rather than continue its downward trend.

Global Implications

The dollar’s sharp fall has stirred volatility in the global currency markets. While some experts view this as the beginning of a prolonged weakness, others believe the dollar is seeking a new equilibrium. If the Fed continues to ease its monetary policy, gold and emerging market currencies could benefit significantly.