The relative value of the US dollar, as measured by the US Dollar Index (USDX), fell to 95.5 on 27 January 2026. The USDX reached its lowest level since February 2022, following its worst one-day slide since April 2025. Values above a baseline index value of 100, established in 1973, indicate a strengthening dollar and values below 100 are consistent with weakening. A 1.3% fall in the USDX on the day was triggered by President Donald Trump’ s comments to reporters in Clive, Iowa. When asked about the weakening dollar, he replied that the dollar was “doing great” and “seeking its own level, which is fair.” The USDX, as calculated by the Intercontinental Exchange (ICE), an American multinational financial services company, is a “geometrically-averaged calculation” of the value of the US dollar relative to a basket of six major currencies, the values of which have been weighted against the US dollar (euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc). The fall in value of the US dollar is even steeper when compared with the euro alone, which takes up a dominant 57.6% of the basket.
The US dollar’s share of global reserve currency holdings has been steadily falling since the 2000s. This fall has accelerated during Trump’s second administration. Investor confidence in the dollar has been dented by Trump’s erratic regime of wide-ranging tariffs, coupled with an erosion of trust in America’s political and legal institutions in response to the President’s repeated assaults on the domestic rule of law, on the independence of the Federal Reserve, and on the international rules-based order. His administration is driven by the belief that devaluing the dollar will make US exports more competitively priced, bring back domestic manufacturing jobs, and reduce the trade deficit. Central banks around the world, as well as private investors, have meanwhile been diversifying away from dollar-denominated reserves and investing in precious metals (gold, silver) and alternative currencies (fiat and cryptocurrencies). Members of the BRICS bloc of nations, in particular, have been seeking to de-dollarise their payment systems in response to American tariffs.
As the world’s leading reserve currency since the Bretton Woods Agreement of 1944, the US dollar accounts for 58% of foreign reserve holdings worldwide as of today and continues to dominate international currency transactions. The dollar, however, is losing out as a reserve currency, as a cross-border payment tool for goods and services, and as a store of value, even as Trump is keen for a devalued dollar to retain its supremacy in currency transactions as part of a paradoxical “strong dollar” policy. But as the dollar depreciates, it loses its appeal as a store of value. Returns for investors fall, causing them to divest themselves of their holdings of dollars and long-term US government debt (US Treasury bills) in favour of safe-haven assets, such as gold. The price of gold has accordingly more than doubled over the past year, reaching $5,419 per ounce at close of trading on 28 January. As investors abandon dollar assets, US borrowing costs are likely to increase.
A deliberate attempt to devalue the dollar, making both exports and domestic tourism cheaper, comes at a price for American businesses and consumers alike. Costlier imports raise prices at home, while travellers find overseas holidays more expensive. Trump appears to have been partly influenced in his approach by the use of the deliberate depreciation of the yuan by the People’s Bank of China, during the trade wars of Trump 1.0, to promote exports from, and to offset the impact of tariffs on, China.
President Trump and his administration have ushered in a new world of uncertainty, characterised by volatile financial markets and increasing geopolitical conflict. The complexity of the situation the world finds itself in makes any reliable predictions difficult. Various economic forecasters have come up with alternative takes on what is to come. Some leading analysts suggest that the dollar will continue to weaken in a bear market through Q1 and Q2 in 2026, followed by a rebound. High government spending, trade tariff shocks, overvalued stocks, inflation, the level of unemployment, and adjustments to interest rates all have a part to play in this matter. Either way, the dollar is most likely to remain the major global currency reserve for the near future. Ultimately, what happens will have to await the passage of events.
Ashis Banerjee