Trump triggers dollar’s worst start to year since 1973

Donald Trump has pushed the dollar to its worst start to a year since 1973 after his trade policies rocked the American economy.

The US currency has fallen nearly 11pc so far in 2025 against a basket of major currencies that includes the pound, the yen and the euro. It marks the weakest first half of a year since the end of the gold standard system 52 years ago.

The dollar’s decline has lifted the value of sterling and the euro to four-year highs of more than $1.37 and $1.17, respectively, as investors bet on lacklustre US growth.

“Trump’s tariffs, the fact that many investors view his administration as somewhat chaotic, along with concerns over US national debt have seen the dollar fall out of favour,” said David Morrison of Trade Nation.

President Trump’s tariff onslaught sent US assets plunging earlier this year amid concerns that the era of so-called American exceptionalism was coming to an end.

The Organisation for Economic Co-operation and Development (OECD) announced this month that it had cut its US growth outlook for this year from 2.2pc in March to just 1.6pc. Official figures published on Thursday showed the US economy shrank by more than expected during the first three months of the year.

As well as slowing growth, international investors have also been concerned about rising debt levels. Mr Trump’s tax-cutting “big, beautiful bill” could add another $3.3 trillion (£2.4 trillion) to the US deficit over the next 10 years.

Luca Paolini, chief strategist at Pictet Asset Management, said part of the dollar’s sharp decline was because it had become “the most expensive asset on almost any measure” at the end of last year.

The US economy had been “doing much better” than Europe and China. “Now, we are in a situation where the growth differential is shrinking,” said Mr Paolini.

“We effectively expect Europe and the US to grow at the same rate this year,” he said. “Retail spending in the US has been flat for five months. You have the Fed cutting rates and you also have dollar outflows because there is all the discussion about taxation and tariffs.

“The US is a much less interesting and attractive place to invest these days.”

He added that the US administration was tolerating a weakening of the dollar because of the “questionable logic” that it will help America generate manufacturing jobs.

Mr Paolini predicted at least another 2pc to 5pc decline in the dollar this year as the Federal Reserve cutting interest rates. Money markets predict at least two rate cuts this year.

Mr Trump is reportedly considering announcing a successor to Fed chair Jerome Powell early in a bid to influence monetary policy. The President wants rates to fall faster and has nicknamed Mr Powell “Too Late”.

James Reilly of Capital Economics said: “We suspect that this could be a pivotal period for the greenback – either it turns around here or there is another 5pc fall around the corner.”

Morgan Stanley analyst Vishwanath Tirupattur added: “Persistent US dollar weakness over the next 12 months was and remains a central theme in our outlook for markets.”

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