In the first half of 2025, the US Dollar Index (DXY) fell by 10.8%, marking the steepest decline in over fifty years, coinciding with a significant increase in the US money supply.
Significant Surge in Money Supply
According to data from the Federal Reserve Bank of St. Louis, the M2 money supply reached $21.942 trillion by May 2025, exceeding the previous peak of $21.749 trillion in April 2022. Analysts believe that this rapid growth may have contributed to the weakening of the dollar, as an increased volume of currency negatively impacts its value.
Expert Opinions and Second-half Expectations
Meera Chandan, Co-Head of Global FX Strategy at JPMorgan, predicts that the dollar may remain weak against major currencies in the second half of the year. She highlights improvements in Europe’s financial outlook coupled with the US’s increasing debt and budget deficits as factors continuing to pressure the dollar. Chandan stated, “The outlook remains weak across all fronts. Changing our perspective will be challenging.”
Market Impact and Future of the US Dollar
Market participants are expected to adopt a more cautious approach towards developments in the DXY index and money supply. Factors such as the US’s growing current account deficit and interest rate policies will continue to influence the global trajectory of the dollar. Experts warn that currency fluctuations may persist in the second half of the year due to significant money supply and rising budget deficits.
Currently, the performance of the US dollar against major currencies and the future of its monetary policies are closely monitored. Experts warn of persistent currency fluctuations impacting the US economy.
