In the first half of 2025, the U.S. Dollar Index (DXY) fell by 10.8%, marking the steepest decline for the first six months in fifty-two years. This significant drop coincided with a record surge in the United States’ money supply, raising concerns about the dollar’s strength against major currencies. Financial circles are scrutinizing this decline, tracing its implications for the dollar’s value on the global stage.
Significant Surge in Money Supply
According to data from the Federal Reserve Bank of St. Louis, the M2 money supply, which tracks cash in circulation, reached $21.942 trillion by May 2025. This surpassed the previous peak of $21.749 trillion in April 2022. Some analysts believe this rapid growth in money supply has contributed to the dollar’s weakening. They caution that an increased volume of currency can adversely impact the national currency’s value.
The ramifications of this record-setting money supply point not only to higher cash and accessible deposit levels within the U.S. economy but also highlight widening budget deficits and national debt. This situation is stirring concerns among investors and economists regarding future economic conditions.
Expert Opinions and Second-half Expectations
Meera Chandan, Co-Head of Global FX Strategy at JPMorgan, predicts that the U.S. dollar may remain weak against major currencies in the second half of the year. She emphasizes that improvements in Europe’s financial outlook, along with the U.S.’s increasing debt and budget deficits, will continue to pressure the dollar.
Chandan noted, “The outlook remains weak across all fronts. Changing our perspective will be challenging. For example, we foresee euro/dollar at 1.20-1.22, dollar/yuan at 7.10, and dollar/yen at 140. A generally weak picture exists for other currencies too. We expect U.S. data to lag behind other countries and Europe’s growth-supportive fiscal policies underpin this view.”
Experts anticipate that this trend could persist through the rest of the year, with U.S. data momentum slowing. Certain structural financial issues in the U.S. are seen as negatively affecting the dollar. European economic growth support measures are identified as key factors that may adversely impact the dollar.
Chandan also forecasts the dollar’s depreciation not only against major currencies but also cyclical currencies like the Australian dollar. There’s a shared belief across the industry that U.S. fiscal policies supporting growth in other countries could lead to a persistently weak American dollar. High money supply growth and escalating national debts are among the economic data underpinning this outlook.
Market participants are now expected to take a more cautious approach concerning the developments in the DXY index and money supply. Factors such as the U.S.’s growing current account deficit and interest rate policies will continue to influence the dollar’s global trajectory.
As of the first half of 2025, the U.S. dollar’s performance against significant currencies and the future of America’s monetary policies are closely monitored. Experts warn that currency fluctuations may persist in the year’s second half, given the substantial money supply and rising budget deficits pressuring the U.S. economy’s currency. Investors, therefore, continue to closely watch these developments for global risk and opportunity assessments.
