Analysis of 2025 US Dollar Weakness Drivers and Their Impact on Cross-Asset Allocation

Based on 2025 market data and latest analysis, I will systematically analyze the drivers of the US dollar’s sustained weakness and their impact on cross-asset allocation.

According to market data analysis, the US dollar experienced a significant depreciation trend in 2025. The EUR/USD exchange rate climbed from 1.0261 at the start of the year to 1.1742, an increase of 14.43% [0], which directly reflects the weakening pattern of the US dollar.

: The chart above shows the 2025 EUR/USD exchange rate trend (a reverse indicator of US dollar strength), the cumulative return comparison of various assets, and the correlation matrix of daily asset returns. A rise in EUR/USD represents US dollar depreciation. Data shows that the US dollar weakened significantly in 2025, with gold showing the most outstanding performance (+61.91%), followed by the S&P 500 (+17.19%).

• The Federal Reserve cut interest rates in three consecutive meetings at the end of 2025 to respond to the softening labor market [2]
• Interest rate cuts led to a decline in US Treasury yields, weakening the attractiveness of US dollar assets
• Market expectations for further rate cuts in 2026 continued to rise; institutions predict the US dollar may fall another 5% in the first half of 2026 [1]

• The interest rate spread between the US and major economies (such as the Eurozone, Japan) narrowed significantly
• When US Treasuries pay lower interest, the attractiveness of US debt decreases, leading to international capital outflow from US dollar assets [1]
• The loss of yield advantage directly weakened the US dollar’s safe-haven status

• The global economy showed resilience, with non-US economies recovering faster than expected
• Investors’ risk appetite increased, shifting from safe-haven US dollars to risk assets (stocks, emerging market assets, etc.)
• The de-dollarization trend accelerated in global trade and financial sectors

• The huge fiscal deficit and national debt scale exert long-term pressure on US dollar credit
• The trend of international reserve diversification reduced dependence on the US dollar

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In 2025, the gold ETF (GLD) achieved a cumulative return of up to 61.91% [0], far exceeding other asset classes:

• US dollar depreciation
  directly pushed up the price of gold denominated in US dollars
• Interest rate cuts reduced the opportunity cost of holding gold
• Gold’s attractiveness as an inflation hedge and safe-haven asset increased significantly

: During the US dollar weakness cycle, moderately increase the allocation ratio of gold (suggested 5-15%) to hedge against currency depreciation risks and enhance portfolio defensiveness.

The S&P 500 index rose by 17.19% cumulatively in 2025 [0]:

• Export-oriented enterprises
  benefited from the competitive advantage brought by US dollar depreciation
• Multinational companies
  gained exchange gains when converting overseas revenues into US dollars
• Export sectors such as technology and industry performed relatively better

: Focus on companies with large overseas revenues and cyclical industries that benefit from global economic recovery. However, be vigilant about the risk of overvaluation.

The long-term Treasury ETF (TLT) rose by only 0.22% in 2025 [0]:

• Interest rate cuts theoretically benefit bonds, but rising inflation expectations limited the increase
• The yield curve steepened, with long-end interest rates relatively stable
• US dollar depreciation reduced the attractiveness of US bonds to foreign investors

: Bond allocation should focus on short-to-medium-term bonds and maintain flexibility in yield curve management.

• US dollar depreciation reduced the US dollar debt pressure of emerging market countries
• Capital flowed to emerging markets in search of higher returns
• Local currency appreciation reduced import costs and improved trade terms

: Moderately increase allocations to emerging market stocks and local currency bonds to benefit from the US dollar weakness cycle and global growth rebalancing.

• Long non-US currencies
  : Euro, commodity currencies (AUD, CAD) performed strongly against the US dollar
• Carry trade
  : Borrow low-interest currencies (e.g., JPY) to invest in high-yield emerging market assets
• Hedging strategy
  : Use currency options or futures to manage exchange rate exposure

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1. Increase the proportion of physical assets
   : Gold and commodities have natural hedging properties during US dollar depreciation cycles

2. Stock Sector Rotation
   :
   • Overweight: Export-oriented, multinational companies, cyclical industries
   • Underweight: Import-dependent, domestic-only enterprises

3. Duration Management
   : Shorten the duration of bond portfolios to reduce interest rate risk

4. Geographic Diversification
   :
   • Increase the allocation weight of emerging markets
   • Focus on markets that benefit from global trade recovery

5. Currency Hedging
   : Moderately hedge US dollar exposure to protect portfolio value

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• US dollar rebound risk
  : If the Federal Reserve stops cutting interest rates or economic data is unexpectedly strong, the US dollar may rebound quickly
• Unexpected inflation
  : Inflationary pressure may lead to central bank policy tightening and trigger market volatility
• Geopolitical risk
  : Trade frictions and geopolitical conflicts may disrupt global supply chains and capital flows

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The sustained weakness of the US dollar in 2025 was mainly due to the Federal Reserve’s interest rate cut policy, narrowing interest rate spreads, and global economic recovery expectations. This had a profound impact on cross-asset allocation: gold and stocks performed excellently, bonds had flat returns, and emerging market assets ushered in allocation opportunities.

, the foundation of the US dollar’s structural strength remains solid, including deep liquidity markets, its position in the global financial system, and the supply of safe assets [1]. However, in the current cycle, investors should flexibly adjust their allocations to seize the diversified investment opportunities brought by the US dollar’s weakness, while closely monitoring the Federal Reserve’s policy shifts and changes in economic data to respond to market volatility in a timely manner.

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[0] Gilin API Data - 2025 Cross-Asset Market Data and Analysis

[1] Investopedia - “Why the Dollar Isn’t as Strong as It Used to Be” (https://www.investopedia.com/why-the-dollar-isn-t-as-strong-as-it-used-to-be-11875778)

[2] Wall Street Journal - “Fed Minutes Suggest Caution About Further Cuts Early Next Year” (https://www.wsj.com/economy/central-banking/fed-minutes-suggest-caution-about-further-cuts-early-next-year-f36148c7)

[3] Yahoo Finance - “Fed Cuts Rates, Signals Caution Ahead” (https://finance.yahoo.com/news/fed-cuts-rates-signals-caution-170000478.html)

[4] Bloomberg - “Deutsche Bank, Goldman See Fed Cuts Rekindling Dollar’s Slide” (https://www.bloomberg.com/news/articles/2025-12-12/deutsche-bank-goldman-see-fed-cuts-rekindling-dollar-s-slide)