The biggest surprise in the markets of 2025: Why was the US dollar the biggest loser?

One of the biggest surprises in the global markets in 2025 was the performance of the US dollar.
Contrary to the nearly unanimous expectations, the dollar did not experience a rally driven by America First policies, but recorded one of its worst years against a basket of currencies in nearly five decades.

The prevailing logic was clear:
Supportive growth policies, higher inflation pressures, higher interest rates for a longer period, and a decline in imports…
All factors that were supposed to push the dollar higher.

But what actually happened was the complete opposite.

Why did the dollar weaken despite the strength of the US economy?

The remarkable thing is that the dollar’s weakness was not the result of investors exiting US assets.
The appetite for technology and AI stocks remains strong, and capital flows into US markets have not stopped.

The most important reason – and perhaps a historical one – is the return of broad currency hedging.
For the first time in about 15 years, international investors:
• Began investing in US assets
• While hedging against dollar risks instead of leaving their positions exposed to it

This structural shift in investor behavior created a downward structural pressure on the dollar, even as the US market’s attractiveness continued.

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Next phase: Who will lead the dollar?

In the coming period, interest rate differentials are likely to play a decisive role.
• Most major central banks seem to be in a pause mode.
• Meanwhile, the US monetary policy path remains unclear, especially in a year that may see a change in Federal Reserve leadership.
• Any shift toward a more dovish tone (Dovish Fed) could push the dollar further down, especially since the currency remains historically strong despite recent declines.

The opposite scenario

Conversely, if:
• US economic growth stabilizes,
• And the Federal Reserve feels comfortable with current interest levels,

The dollar might regain some momentum after a tough year, especially if the hedging wave subsides or stabilizes.

Summary

What happened in 2025 was not a collapse in confidence in America, but a change in how investors manage their risks.
The dollar was not sold because the United States weakened, but because investors became more aware and less tolerant of currency risks.

The most important lesson:
In currency markets, it’s not just the economy that determines the trend…
But investor behavior, hedging, and risk balance$BTC