The dollar suffers its worst first half since 1973

The first half of 2025 ended with the dollar posting its worst performance in more than half a century. The index measuring its value against a basket of major currencies, the DXY, fell around 10.7% between January and June, the biggest first-half fall since 1973, when the Bretton Woods system of fixed exchange rates was abandoned. The euro, which had started the year close to parity, rose above $1.17.

Why it fell

Analysts point to several causes. The Trump administration’s trade war, with April’s “Liberation Day”, made investors question America’s role as a safe haven. The big tax bill, which would widen the deficit, fed doubts about public debt. And the president’s criticism of the Federal Reserve and its chair, Jerome Powell, raised questions about the central bank’s independence.

At the same time Europe gained appeal: Germany’s defence and infrastructure spending plan and the stability of ECB rates drew capital towards the euro area.

What it means for a European investor

For a euro-based investor, the dollar’s fall cut returns on US investments. US stock markets had regained their highs by June, but measured in euros many portfolios were barely up for the year or even down. Those whose dollar exposure was hedged, by contrast, did not suffer that effect.

For Spanish exporters, a stronger euro makes their products dearer in the United States and in countries that trade in dollars; for importers of commodities such as energy, it makes them cheaper.

What to review

It is worth knowing how much of your wealth is in dollars, directly or indirectly through global funds, and whether that exposure is hedged. Currencies can move both ways and hedging has costs. Ask your adviser how this applies to you.

In an international portfolio, the currency is an investment in itself, even if it was never chosen.