The US dollar index recorded its worst half-year performance in 50 years! Multiple bearish factors weigh heavily as global central banks frantically stockpile gold in a "de-dollarization" move

According to the Zhitong Finance APP, the US dollar has just experienced its weakest first half since the Nixon administration broke the gold standard of the Bretton Woods system. As of June, the dollar index has cumulatively fallen by 10.7% against other major currencies, marking the worst half-year record since 1973 and reaching its lowest level since February 2022. Market analysis indicates that multiple negative factors continue to pressure the dollar, and the trend in the second half of the year may face greater challenges.

Art Hogan, Chief Market Strategist at B. Riley Wealth Management, pointed out that the current market has fully digested negative factors such as policy fluctuations, debt expansion, and expectations of interest rate cuts by the Federal Reserve. The fiscal situation in the United States continues to deteriorate, with both parties failing to take effective measures to curb the expansion of the deficit. Coupled with the estrangement of ally relationships in military and trade areas, this has accumulated sufficient negative momentum for the dollar. Although the dollar has continued to weaken since mid-January, it only saw a brief rebound in April due to easing expectations around Trump's tariff policies, but the overall downward trend has not reversed.

In terms of market impact, the depreciation of the dollar has not significantly affected US stocks. More than 40% of the revenue of S&P 500 constituents comes from overseas markets, and a weak dollar objectively enhances the price competitiveness of US export products, which constitutes important support amid ongoing trade frictions. However, the erosion of the dollar's hegemonic status is raising deeper concerns, as US public debt approaches $30 trillion, and the fiscal deficit is expected to exceed $2 trillion by 2025. If global trust in the dollar and US Treasury bonds continues to decline, it may have a structural impact on risk assets such as stocks.

Global central banks are accelerating their purchases of gold as a reserve asset. Data from the World Gold Council shows that monthly gold purchases by central banks have reached 24 tons, with gold prices experiencing the highest increase in the first half of the year since 1979. Lawson Winder, an analyst at Bank of America, believes this reflects countries' strategic intent to reduce dependence on the dollar through diversified reserves, especially against the backdrop of ongoing tariff policies and fiscal deficit issues. TS Lombard has more explicitly stated that they will "firmly short the dollar," believing that the Trump administration's intervention in Federal Reserve policy and its clear stance on wanting a weaker dollar further reinforces the judgment that the dollar is overvalued.

Although the Federal Reserve may initiate interest rate cuts in the second half of the year, the historical context of the last rate cut cycle in 2024, where the dollar and US Treasury yields rose against the trend, creates uncertainty regarding the current policy effects. However, Wall Street institutions have differing views on the dollar's outlook. Capital Economics pointed out that the recent rise in the stock market reflects investors' restored confidence in US assets, and the dollar's previous weakness may stem from other currencies actively appreciating and adjustments in hedging strategies. Wells Fargo emphasized that the dollar's core position in the global trade and financial system is irreplaceable, and its rule of law environment, market transparency, and liquidity advantages make the "de-dollarization" process extremely slow, especially considering the significant shortcomings of major alternative currencies.

US Treasury Secretary Scott Bessen referred to the recent exchange rate fluctuations as a "normal phenomenon," but the rise in US Treasury yields still suggests that market concerns about US assets have not dissipated. Hogan from B. Riley summarized that although there is a possibility of a technical rebound due to overselling, the fundamentals still accumulate deep risks such as debt crises and policy uncertainties, making it difficult for the downward pressure on the dollar to dissipate in the short term