The dollar’s slide last year looks less like a sudden break and more like the culmination of pressures that have been gathering for a while. The fading of US exceptionalism has sat quietly in the background, and once the narrative started to normalise, the cracks became clearer: softer growth expectations, slower capital inflows, and valuations that had been leaning heavily on the idea that the US could keep outperforming indefinitely. The currency came into the year heavily owned and reliant on that growth premium, and when it began to erode, the dollar suddenly felt far more exposed to shifts in sentiment and positioning than it had for some time.

At the same time, the policy backdrop has turned more awkward for the currency. Markets expect the Fed to continue cutting, and the prospect of a more politically influenced leadership has introduced a small but noticeable risk premium around credibility. That is happening just as fiscal policy remains unanchored, with deficits showing little sign of narrowing and spending likely to rise into the election cycle. The steepening we’ve seen in the curve has not offered the dollar much support. Even when nominal yields tick higher, the lack of a credible fiscal path blunts the rate‑differential argument the currency would otherwise be able to lean on.

Trade policy hasn’t helped clarify matters either. Ordinarily, higher tariffs would tighten the inflation narrative and lend support to the dollar, but the market seems to be treating recent announcements with a degree of caution. The reversals, the unpredictability, and the simple fact that these things take time to feed through the system have meant the FX impact has been surprisingly muted. Rather than helping the dollar, tariff headlines have added to the broader sense of uncertainty.



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