The dollar is being treated as a pressure-release mechanism for US debt — and markets are responding by demanding protection against intentional depreciation.

For decades, US dollar dominance rested on a simple but profound foundation. Predictable institutions made the dollar stable, on the belief — sometimes overstated — that the United States would not deliberately undermine its own currency. That belief is now visibly eroding.

The dollar has fallen to its weakest level in nearly four years, not because of a recession or crisis at home, but because investors are increasingly uneasy about the direction of American policy. Against a basket of other currencies, the US dollar is approaching the lows seen during the COVID pandemic as markets are beginning to price in something more corrosive than cyclical weakness. Political and institutional risk is emanating from Washington itself.

Bloomberg Dollar Index, 2020 – present



The immediate catalysts are not difficult to identify. A barrage of radical policy proposals — universal tariffs, explicit talk of engineering a weaker dollar to boost exports , revived speculation around a so-called Mar-a-Lago Accord, and even loose discussion of restructuring Treasury obligations — has injected deep uncertainty into currency markets. Add to that overt efforts to pressure the Federal Reserve toward lower interest rates, including attempts to shape the future composition of the FOMC, and the result is a growing conviction that the dollar is less insulated from political whim than at any point in recent history. Currency traders are responding accordingly. Options markets now show the most expensive hedges against dollar weakness since records began in 2011, while positioning across major currencies reflects a decisive shift away from the greenback.

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US Dollar Index versus gold price per ounce, Jan 2025 – present



Real Trade-Weighted US Dollar and USD percent in SWIFT, Jan 2021 – present



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