The U.S. Dollar Index (DXY), which tracks the dollar against a basket of other currencies, has fallen by nearly 10% this year, driven by U.S. debt concerns, lower interest rates, and tariff uncertainty. The weak performance could mark a notable pivot for the world’s leading currency.
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“The US dollar’s weakness in 2025 likely signals a turning point in its long cycle of strength—though not the end of its global dominance,” said Morningstar Investment Management Head of Fixed Income and Currency Research Hong Cheng.
Is the U.S. Dollar in Danger?
Cheng doesn’t expect a “full-blown structural collapse” of the dollar, although she does believe that it is overvalued relative to other currencies. She added that investors should consider diversifying to non-U.S. markets because their currencies have greater appreciation potential when compared to the dollar.
Furthermore, Cheng highlighted gold (XAUUSD) as a hedge to a weakening dollar. However, gold’s weakness lies in its lack of cash flow and volatility, which makes it difficult to value.
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