At the start of each year, there is often a strong consensus narrative around the expected behavior of the U.S. dollar. At the start of 2025, the consensus was that the dollar would suffer on the back of the introduction of tariffs and, in our view, a Trump administration that seemed to regard the Nixon administration’s 1971 dollar shock as the desired playbook for gaining a competitive edge in global trade. In this case, the dollar did end up declining by 13% from its peak at the start of January 2025 to its trough at the end of January 2026. At the start of this year, the consensus was for a slightly weaker dollar. Since the end of January, however, the dollar has gained almost 6%.
In this Economics Weekly, Richard de Chazal once again discusses the dollar—what is driving it in the near term and in which direction it is likely to head over the longer term.