The U.S. dollar, traditionally viewed as a reliable haven during economic turbulence, finds its standing increasingly questioned by market analysts. Despite a robust U.S. economic performance last year, marked by a 4.4% annualized growth rate and declining inflation, the greenback has experienced a notable decline. Over the past twelve months, the dollar has depreciated by 9.4% against a standard basket of foreign currencies, a trend that extends back to 2022. This divergence between a strong domestic economy and a weakening currency presents a complex picture for investors and policymakers alike.
One of the most striking examples of this trend is the dollar’s performance against the British pound. It has lost 8% of its value over the last year, even as the UK’s annual economic growth rate of 1.3% pales in comparison to that of the United States. Furthermore, the euro has seen a nearly 12% appreciation against the dollar in the same period, meaning a dollar now buys only 84 cents in Paris. This sentiment is echoed in equity markets, where the Stoxx Europe 600 index has climbed almost 4% year-to-date, contrasting sharply with the S&P 500, which has seen a slight dip of 0.14%.
Francesco Pesole, an analyst at ING, points to a persistent “Sell America” trade as a primary driver behind the dollar’s struggles. While the U.S. economy appears strong on paper, underlying concerns are tempering investor enthusiasm for the dollar. Of particular note is the labor market, where rising unemployment and weak hiring figures have caught the attention of observers. Some economists suggest that January’s unexpectedly high job creation numbers might be subject to downward revisions as more comprehensive data becomes available, potentially indicating a statistical anomaly rather than a genuine surge in employment.
The Federal Reserve’s dual mandate includes supporting the labor market, and any sustained weakness in job numbers could prompt the central bank to consider further monetary easing. Despite the Fed holding interest rates at 3.5% during its January meeting, many Wall Street analysts anticipate at least two more rate cuts later this year. The prospect of lower interest payments on dollar-denominated assets naturally diminishes their appeal to global traders, contributing to the currency’s downward pressure. Pesole noted that the recent improvement in the U.S. macro picture has not been enough to restore the dollar to its early January levels, indicating that the mid-January “sell America” episode, much like a similar event in summer 2025, has left lasting damage.
George Vessey at Convera shares a similar assessment, observing that the U.S. dollar index concluded last week in negative territory after a volatile period influenced by AI-driven equity jitters and ambiguous macroeconomic signals concerning Fed policy. Vessey suggests that markets are currently predisposed to react to weak or dovish U.S. data, with investors increasingly convinced that the Federal Reserve will respond aggressively to any signs of economic softness. This asymmetrical response expectation further erodes the dollar’s perceived safe-haven utility, as its value becomes more susceptible to negative economic indicators. The collective sentiment among these analysts indicates a significant shift in how the market views the U.S. dollar, moving away from its historically unshakeable position as a global refuge.
