The US Dollar Index (DXY), a widely used tool to assess the strength or weakness of the US dollar against a basket of major global currencies including the Japanese Yen, Canadian Dollar, British Pound, Euro, Swedish Krona, and Swiss Franc, has witnessed significant volatility over the past two years.

From Highs to Lows in Record Time:

On 13 January 2025, the DXY touched 109.861, marking a period of strong dollar performance. However, in just 5.5 months, it tumbled to 95.918 by 1 July 2025, registering a steep decline of 12.69%. This is the sharpest drop in over half a century for a comparable period.

By 8 August 2025, it recovered slightly to 97.592, but it is miles away from the 2022 levels, when the index had peaked at 114.056 on 28 September 2022.

Political Influence on the Dollar:

Political developments have influenced the currency’s trajectory. Donald Trump returned to power on 20 January 2025, after winning the US assembly polls on 5 November 2024. His victory contributed to short-term strength, pushing the index to a two-year high, but the policies in his second term and macroeconomic pressures soon outweighed the boosts.

Impact on Global Transactions:

The dollar’s decline has real-world implications. For people earning in the US and sending remittances abroad, a weaker dollar translates into reduced value in the recipient’s local currency. This directly impacts those relying on cross-border transfers for personal or business needs.

Key Drivers Behind the Weakness:

Several interlinked factors have driven the dollar’s downturn:

1. Trade and Economic Policy Shifts – “America First” and tariA-focused policies have created uncertainty in global markets.
2. Fiscal Pressures – A widening fiscal deficit and mounting US debt levels have shaken investor confidence.
3. Reduced Reliance on the Dollar – Central banks across the world are increasing gold reserves and diversifying currency holdings.
4. BRICS-led De-dollarisation Push – Countries like India, China, Russia, South Africa, and Brazil are actively promoting trade settlement in local currencies, reducing dependency on the US dollar. Example India paid for Russian oil in Yuan and Bangladesh financed its 1.4 GW nuclear power plant in Yuan as well.
5. Global Currency Alternatives – Many emerging economies are fostering bilateral trade agreements that bypass the dollar entirely and using a non-dollar currency for the trades.

Key Facts:

1. US Debt increased from 32.67 trillion to 35.46 trillion, that is 8.54% absolute increase since 2020.
2. India’s Gold reserve increased by 30% since Q4 2020 to Q2 2025.
3. India’s US dollar reserves have declined by 2.27% since September 2024.

The Road Ahead:

The combination of economic imbalances, geopolitical shifts, and coordinated moves by BRICS nations towards de-dollarisation signals a structural challenge for the US dollar, US may seems to have diAiculties, dominance may be waning but still commanding the position as no new alternative option is available, we can say that US Dollar have already touched its peak in terms of dominance and cannot be pushed further for extra ordinary growth from here. Unless macroeconomic fundamentals improve and confidence is restored, the greenback (U.S Dollar) may face continued downward pressure in the coming years. United States are losing investors’ confidence in their financial assets due to the uncertainty US government is putting in front of the world.