The value of the U.S. dollar has plummeted by more than 10% in the first half of the year due to the effects of U.S. President Donald Trump’s trade wars and the massive U.S. fiscal deficit.
This is the first time the dollar has fallen so sharply in 52 years since the end of the Bretton Woods system in 1973.
The sharp decline in the dollar’s value is a risk factor that could threaten its long-held status as the world’s primary reserve currency.
The Financial Times (FT) reported on Monday that the U.S. dollar had its worst performance in the first half of this year since 1973, when the Bretton Woods system, based on the gold standard and fixed exchange rates, collapsed.
In the first half of 1973, the value of the U.S. dollar plummeted by 15%.
The U.S. Dollar Index, which shows the dollar’s value against six major currencies, including the euro, Japanese yen, and British pound, has fallen by more than 10% this year.
Francesco Pesole, a foreign exchange strategist at ING, said, “The dollar has become the whipping boy of Trump 2.0’s erratic policies.”
With the onset of Trump’s second term, investors are losing faith in the dollar amid a series of disruptive factors, including trade wars and seesawing policies.
Investors have become skeptical of the U.S. dollar due to Trump’s inconsistent trade wars, the massive U.S. fiscal deficit, and reckless fiscal spending.
Pesole pointed out that the dollar’s appeal as a safe-haven asset is weakening, especially as Trump continues to pressure the Federal Reserve, which had been maintaining stability in the U.S. financial system.
The dollar’s value fell another 0.5% on this day.
This was due to concerns that the U.S. fiscal deficit would snowball as the U.S. Senate prepared to vote on Trump’s “big and beautiful” tax reform bill.
Trump is attempting to make the tax cuts he pursued during his first term permanent, while also increasing fiscal spending on areas such as national defense.
If this tax reform bill passes, the U.S. fiscal deficit is expected to balloon by 3.2 trillion USD over the next decade. This could lead to a loss of confidence in U.S. Treasury bonds and trigger a mass exodus of investors from the U.S. bond market.
On the other hand, as the dollar declines, gold prices are soaring.
Gold hit an all-time high of 3,500.05 USD per ounce on April 22.
Although it has now fallen to just under 3,300 USD per ounce, there are predictions that it will surpass 3,800 USD in the second half of this year.
