The worst start of the year for the dollar in over fifty years

From January to June, its value dropped by almost 11 percent: and yes, tariffs and the chaos of Trump’s decisions are involved. The U.S. dollar has experienced its worst start of the year since 1973: from January to June, its value dropped by nearly 11 percent when compared to a basket of foreign currencies, including the euro, the British pound, and the Japanese yen.

The decline is due to a combination of factors largely attributable to decisions made by President Donald Trump, who took office on January 20. Chief among them is the trade war he launched by imposing, suspending, and threatening high tariffs on many countries—something that has created and continues to create major confusion in financial markets, the manufacturing sector, and global trade. In addition to this are concerns about rising inflation (and thus the cost of living) and the increase in U.S. public debt.

Nonetheless, the dollar remains the most important currency in the world and the one around which the global monetary and financial systems revolve. However, the fluctuations and declines in its value are unsettling investors, some of whom may choose to reduce their exposure to the volatility of Trump’s decisions by avoiding or cutting back on investments in U.S. assets.

In contrast, during the first six months of 2025, the value of the euro rose by 13 percent: today, one euro is worth $1.18, whereas on January 1 it was worth $1.04. This means that for citizens of eurozone countries (including Italy, of course), it is now cheaper to travel to the United States and shop in dollars, while for Americans, coming to Europe and investing here is more expensive. At the same time, a weaker dollar should help boost U.S. exports (since for a European or a Japanese buyer, purchasing goods in dollars has become more affordable) and discourage imports. However, these mechanisms are heavily influenced by the tariffs imposed by Trump.

The last time the dollar had such a negative start to the year was more than fifty years ago, in 1973, during a turning point in the global currency system. From the end of World War II, Western currency exchanges were based on the Bretton Woods system and the so-called gold exchange standard: currencies were pegged to the dollar, which in turn was the only currency convertible into gold.

In 1971, under both domestic and international pressure, U.S. President Richard Nixon decided to end this system and unpeg the dollar from gold. It was a monumental decision, famously remembered as the “Nixon Shock,” which ushered in a new era: after an initial period of adjustment, all countries began to adopt a new system of flexible exchange rates, which is still in use today.

As mentioned, the fall of the dollar in the first six months of 2025 is also linked to serious concerns about an imminent increase in U.S. public debt. For weeks now, Trump has been trying to gather votes in Congress to pass the “One Big, Beautiful Bill Act,” which provides for tax cuts for higher income brackets and investments in military spending and border control—only partially offset by cuts in healthcare, education, and renewable energy.

The measures proposed in the bill are expected to add more than $3 trillion to U.S. public debt over the next ten years—an enormous sum. The government hopes to at least partially cover it with increased investments in U.S. Treasury bonds, but investors are now pulling back due to declining confidence and the volatility of the U.S. economy—largely caused by Trump’s policies.