About That ‘Worst Start on Record’ for the Greenback

You know investor sentiment is in a weird place when global stocks rise 9.5% in the year’s first half, yet most headlines fixate on the dollar marching off to its “worst start on record.”^[i] But alas, that is where we are. Q2’s complete trip from Liberation Day panic to new highs seems lost in the shuffle, supplanted by greenback handwringing. Now, we are of the view that dollar swings are generally overegged. Neither a strong nor weak dollar is inherently good or bad for trade, economic growth or stocks. Currency moves can create winners and losers, but companies hedge for them, and they are only one factor. But also, in proper context, the dollar’s move isn’t so significant.

You see, currencies trade in pairs, always, which means that in the developed world, they aren’t one-direction. They generally trend up and down over time, waffling like those sine wave charts you might remember from Intro to Trig. All else equal, money flows to the highest-yielding asset, so currencies will generally track interest rate expectations. That is it. They don’t cause or predict economic trends. They just reflect expectations for future payouts. And currency strength and weakness has absolutely zippo to do with the US dollar’s status as world reserve currency, which also happens to be near-meaningless for US economic and stock market prospects.

But because currencies ebb and flow, there will be stretches where moves look big. And because people seem to be hardwired to fear currency moves, those moves will cause angst. Here, folks are worried the dollar is too weak. In Europe, central banks are getting so nervous about currency strength that the Swiss National Bank took rates to zero last week. The answer to all of this is to view moves in context.

So this is what we do for you in Exhibits 1 – 4. They show, in order, the dollar relative to the pound, yen, euro and a broad trade-weighted currency basket. The euro chart starts at that currency’s birth. The others start in early 1973, when the modern post-Bretton Woods system took effect. You will see that relative to the pound, the dollar is still rather strong, trading above its long-term average. Relative to the yen and euro, it is just about bang-on average. And relative to the global basket, it is very strong—still at levels everyone thought were too high throughout 2023 and 2024. Nor is the drop relative to this basket historically large. It may indeed be the worst first half-year, but there were larger six-month drops in 1995, late 2009 and late 2020. All were fine times for stocks. If the dollar’s last high-water mark didn’t happen to occur at yearend, no one would be talking about the “weakest start” on record. We doubt anyone would shriek over the 11^th largest six-month drop in history. It isn’t exactly headline-inducing.

Exhibit 1: The Dollar in Context, Sterling Edition

Source: FactSet, as of 7/1/2025. Month-end spot rate, 3/31/1973 – 6/30/2025.

Exhibit 2: The Dollar in Context, Yen Edition

Source: FactSet, as of 7/1/2025. Month-end spot rate, 3/31/1973 – 6/30/2025.

Exhibit 3: The Dollar in Context, Euro Edition

Source: FactSet, as of 7/1/2025. Month-end spot rate, 3/31/1973 – 6/30/2025.

Exhibit 4: The Dollar in Context, Omnibus Edition

Source: FactSet, as of 7/1/2025. Trade-Weighted US Dollar Index (Broad), monthly, 3/31/1973 – 6/30/2025.

So no, the dollar isn’t crashing or historically weak. It is behaving like a normal currency, with normal wobbles, at levels coinciding with fine economic growth and market returns. The fear is a sign of sentiment, not of dark things to come.