2025 is shaping up to be a disaster year for the US dollar—depreciating by 9.5% throughout the year, the worst performance since 2017. Meanwhile, the euro has risen by 14%, and the British pound is also rebounding strongly, as the global exchange rate landscape undergoes dramatic reshaping.

The dual pressures behind this cannot be underestimated. On one hand, the combined effects of trade policy adjustments and expectations of central bank rate cuts are weakening the attractiveness of the dollar; on the other hand, markets widely anticipate 2-3 more rate cuts in 2026, while the European Central Bank remains relatively cautious. This widening interest rate differential is accelerating capital flows.

Even more variables are brewing. Powell will step down in May, and the policy orientation of the new chair is uncertain. If personnel changes affect decision-making independence, the dollar could face a deeper trust crisis—posing a real risk for asset allocations denominated in USD.

The AI boom briefly supported the dollar’s rebound by 2.5%, but this did not change the overall trend. Deutsche Bank’s latest assessment indicates that this is one of the most challenging times since the floating exchange rate system was established. Institutional investors are systematically reassessing dollar assets, and selling pressure persists.

The critical question is: will the dollar stage a desperate rebound in 2026, or will it continue its depreciation cycle? This not only affects exchange rates but also directly impacts your cross-asset allocation strategy. Now is the time to rethink your risk exposure.