The U.S. dollar has had a rough year. Long a key pillar of the global financial system, it has come into question amid President Donald Trump's tariff-driven upending of free trade. And ratings agency Moody's recent downgrade of America's credit rating may weaken the dollar further.
"Brand USA" is falling "further out of favor," said Reuters. Investor confidence in the usually strong dollar was already weighed down in 2025 by "trade-related uncertainties, ballooning fiscal debt and weakened confidence about enduring U.S. exceptionalism." However, there had been some bounceback after the U.S. and China called a pause in their trade war. The move by Moody's put new momentum behind "sell America" investors. Betting against a strong dollar has traditionally "proved painful time and again" thanks to the powerful American economy, but "that could be about to change."
The dollar's dominance was already "winding down" before Moody's influence, said The Harvard Gazette. America's currency "will still be first in global finance, because nothing is poised to fully replace it," said Kenneth Rogoff, a professor of economics at Harvard University. But it will be diminished. Other countries "were already moving away from the dollar" before Trump returned to office. "Now they're moving much faster."
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America "cannot afford to lose dollar dominance," said Martin Mühleisen and Valbona Zeneli at the Atlantic Council. The strong dollar undergirds U.S. military dominance and the government's ability to effectively impose sanctions on other countries and borrow money at low interest rates. The end of that strength likely means a "U.S. loss in global influence."
"What will this weaker-dollar world feel like?" asked Rebecca Patterson at The New York Times. There is an upside: A depreciated dollar could make it easier for American companies to sell their exports and "might help encourage tourism" by making it cheaper for foreign citizens to visit. The flipside is that the soft dollar will make "imported goods more expensive" and undermine the purchasing power of U.S. households. Americans will pay for a weaker dollar "in the form of relatively higher prices and interest rates."
The distress created by Trump's policies "creates an opportunity for the eurozone," said Hélène Rey at MarketWatch. For a currency to serve an "international role" like the dollar does now, the country backing it must "enjoy economic preeminence and occupy a central position in global trade." That is not possible "without an open economy and high-quality, stable institutions." Right now, the U.S. is backing away from "global economic and financial leadership," leaving the playing field open for the European Union and its currency to step "quickly into the breach."
What next?
The dollar "bore the brunt" of the market impact from the Moody's downgrade, said Bloomberg. And there may be more to bear. Investors believe the "massive tax package" winding its way through the GOP-controlled Congress will increase the deficit, debt and government payments on debt interest, with knock-on effects for the dollar. And analysts are concerned about the "continued lack of political will in Washington to address the deteriorating fiscal outlook," said a team from financial services firm Raymond James.
