The US dollar has recorded its worst first half in 50 years, and interest rate cuts may further exacerbate depreciation pressure

According to the Zhitong Finance APP, after experiencing the worst first half since the Nixon era, the US dollar is facing a new round of uncertainty pressure. This turmoil may not only affect the economic outlook of the United States but also have significant implications for global investors' asset allocation strategies.

According to the latest data, as of the end of June, the US dollar has cumulatively fallen by 10.7% against major global currencies, marking the most severe half-year decline since the end of the Bretton Woods system in 1973. The dollar briefly dropped to its lowest point since February 2022 in mid-year.

Art Hogan, Chief Market Strategist at B. Riley Wealth Management, stated that the decline of the dollar is not coincidental. "Massive fiscal deficits, policy uncertainty, the potential for the Federal Reserve to cut interest rates, and diplomatic frictions are all driving investors to seek other safe-haven assets. Once a downward trend is established, momentum is often difficult to reverse."

Although the dollar rebounded in mid-April due to market expectations that the Trump administration might not impose tariffs as aggressively as anticipated, the overall trend remains weak. Since mid-January, the dollar has shown a continuous weakening trend, with only occasional brief recoveries.

While a weaker dollar typically enhances the export competitiveness of US companies, particularly benefiting those reliant on international markets within the S&P 500 index, it has also sparked widespread discussions about whether the "American exceptionalism" and "dollar hegemony" are coming to an end.

Currently, US public debt is approaching $30 trillion, and the fiscal deficit is expected to approach $2 trillion by 2025. This enormous debt burden is undermining the attractiveness of dollar-denominated assets.

Global central banks have already taken action in response. According to data from the World Gold Council, central banks are currently purchasing 24 tons of gold per month, marking the strongest first half since 1979 and seen as a "substitute allocation" for dollar assets.

Lawson Winder, an analyst at Bank of America, pointed out, "Central banks are buying gold to diversify their foreign exchange reserves, reduce dependence on the dollar, and combat inflation and economic uncertainty. This trend is expected to continue."

Some investment institutions in the market have begun to adopt clear betting strategies. Research firm TS Lombard referred to the dollar as a "gift that keeps on giving opportunities" in its report and maintained its short position on the dollar.

At the same time, investors are closely watching whether the Federal Reserve will initiate interest rate cuts in the second half of the year, which could further exacerbate the depreciation pressure on the dollar. Although the dollar and US Treasury yields rose after the Fed's last rate cut in 2024, if policy expectations lean dovish, the dollar may struggle to stabilize.

However, some institutions still hold confidence in the future of the dollar. Thomas Matthews, head of Asia-Pacific markets at Capital Economics, believes that the recent rebound in US stocks shows that the market still has strong confidence in US assets, and the weakness of the dollar may be more a result of the appreciation of other currencies and adjustments in hedging strategies.

Jennifer Timmerman, an analyst at Wells Fargo, believes that concerns about the role of the dollar are exaggerated. "Statistically, the dollar remains the core hub of the global trade and financial system. The rule of law in the United States, market transparency, and high liquidity constitute the irreplaceable advantages of the dollar."