The Dollar's Worst Half-Year Since 1973: Inside the 'Sell America' Trade That Redrew Global Capital Flows

In the first six months of 2025, the world's reserve currency had its worst start to a year since 1973. The dollar fell by more than 10% against a basket of major peers, erasing in a single half-year the kind of gains it usually grinds out over several — and it did so while the United States was, on paper, the world's growth standout. Something deeper than a cycle was moving. As NPR's senior business editor Rafael Nam explained in a July 5, 2025 Weekend Edition analysis, foreign investors began the year scooping up American stocks and bonds, as they had for more than a decade — and ended the spring selling them, a shift prevalent enough that Wall Street gave it a name: the "sell America" trade.

This deep dive unpacks that trade: the currency mechanics behind it, the three policy shocks that triggered it — tariffs, a presidential assault on the Federal Reserve, and a war-shadowed summer — the fiscal bill that signed America's debt trajectory into law on July 4, 2025, and the evidence on both sides of the question Nam called "the trillion-dollar question": whether the dollar's dominance is suffering a cyclical wobble or the beginning of a structural decline.

The worst first half since 1973 — and why that year matters

By the end of June 2025, broad dollar gauges such as the Bloomberg Dollar Spot Index were down roughly 10% year-to-date, the steepest first-half decline in more than five decades. The comparison year is not arbitrary. In 1973 the Bretton Woods system of fixed exchange rates formally collapsed: after President Richard Nixon suspended gold convertibility in August 1971 and the Smithsonian realignment of December 1971 failed to hold, the major currencies were left to float by March 1973, and the dollar devalued sharply against the mark and the yen. That was the last time the currency's role in the system was genuinely in doubt.

• First half of 1973: double-digit dollar decline as Bretton Woods gives way to floating rates — the historical benchmark.
• First half of 2017: roughly a 6% slide, previously the worst start since 1973, as early Trump-era policy uncertainty disappointed a stronger-dollar consensus.
• First half of 2025: a fall of more than 10% amid tariff shocks, Fed-politics stress and renewed fiscal expansion — a new worst start in 52 years.

What makes 2025 analytically unusual is not the size of the move alone but its direction relative to the news flow. In 2008, 2020 and 2022 — the modern template years — global turmoil drove investors toward the dollar as the safest, deepest asset pool in the world. In 2025 the turmoil was, to a remarkable degree, manufactured inside the United States, and the safe-haven bid failed to appear. When the source of risk is the reserve currency's own government, the usual reflex breaks.

The mechanics of the "sell America" trade

Nam's explanation of the currency plumbing is worth stating precisely, because it explains why asset flows and the exchange rate are the same story. When a foreign investor buys a hundred shares of Microsoft, the transaction must ultimately be settled in dollars: the investor converts euros, yen or kroner into dollars, and that conversion itself pushes the dollar up. For most of the past fifteen years, that channel ran in one direction — persistent foreign demand for U.S. equities and Treasuries acted as a standing bid under the currency, reinforcing the "American exceptionalism" trade in which dollar assets out-earned everything else and foreigners funded the deficit almost as a by-product.

In 2025 the flow reversed. Three channels mattered:

• Direct rotation. Global funds trimmed U.S. equity weights and rotated into European and Asian markets after the April tariff shock, selling dollars to buy euros and other non-dollar currencies.
• Hedging. Existing foreign holders of U.S. assets — pension funds, insurers, sovereign investors — raised their currency-hedge ratios, a technically invisible but powerful source of dollar supply: hedging a U.S. bond position means, in practice, shorting the dollar against the home currency. Strategists at several large banks estimated that hedging flows amplified the spring decline materially.
• The marginal buyer's strike. Even where outright selling was limited, the pace of new foreign buying slowed. In a market whose currency is bid up by incremental inflows, a strike by the marginal buyer is itself a bearish force.

The result was a paradox that defined the first half of the year: U.S. assets and the U.S. currency fell together. Normally, when stocks in a country decline, its currency can still hold up if foreigners see value; when the currency falls, it usually means capital is leaving for better yields elsewhere. In the spring of 2025, both prices said the same thing at once — risk attached to America itself had been repriced.

Tariffs: the firehose

The trigger was trade policy. On April 2, 2025 — branded "Liberation Day" — President Donald Trump announced a universal baseline tariff of 10% on nearly all imports plus "reciprocal" levies of up to roughly 50% on dozens of individual trading partners. Two market facts followed within 96 hours. First, the announcements were far more aggressive than any leaked draft had suggested. Second, and more revealing, the U.S. Treasury market sold off alongside stocks — the 10-year yield spiked rather than fell, an abnormal crisis signature that investors read as a vote of no confidence in U.S. assets generally. On April 9 the administration paused most of the reciprocal tariffs for 90 days, until July 9, leaving the 10% baseline in place; the tariff war with China escalated to triple-digit rates on both sides before being de-escalated through talks in Geneva and London in May and June.

By early July, the pause was running out. The White House began sending trading partners letters with new deadline dates — most prominently August 1 — while announcing a handful of framework deals, including one with the United Kingdom in May that kept British exports at the 10% preferential baseline. As Nam put it on NPR, the year had been "a firehose of events": tariffs on just about every country in the world, each announcement and reversal repricing the entire U.S. policy outlook.

Why tariffs did not strengthen the dollar

Standard trade theory would predict the opposite. Tariffs compress imports, shrink the supply of dollars sold to buy foreign goods, and — to the extent they are not offset — should appreciate the currency. The 1980s offer the counterfactual: protectionist pressure under the Reagan administration coincided with a soaring dollar. In 2025, three forces overwhelmed that channel. Tariffs raised U.S. inflation at the same time as they lowered U.S. growth — a stagflationary mix that cuts the expected real return on dollar assets. They invited retaliation against U.S. exporters, weighing on the trade balance rather than improving it. And, critically, they were announced and rewritten so often that they functioned less as a policy than as a volatility machine, and volatility is something reserve-currency holders hedge — which, as noted above, means selling dollars.

The fight with the Federal Reserve

The second shock was institutional. Through the spring of 2025, President Trump escalated a public campaign against Federal Reserve Chair Jerome Powell — whom he dubbed "Mr. Too Late" — demanding immediate, deep rate cuts, floating the idea of firing him in April, and pressing advisers to explore legal pathways to do so. The Fed held its target range at 4.25%–4.50% throughout the first half, having last cut in December 2024, on the argument that tariff-driven inflation risks required patience. Powell's term as chair runs to May 2026, and by mid-year the succession question — who a Trump nominee would be, and how that person would treat the White House's calls — had become a live topic in bond-market research notes.

Why does this move a currency? Central-bank independence is, in effect, part of the reserve currency's collateral. Foreigners hold dollars and Treasuries partly because they trust that U.S. monetary policy responds to inflation and employment data rather than to the electoral calendar. Every presidential demand for a cut the Fed refuses to make demonstrates that independence — but every threat to fire the chair prices a small probability that it will not survive the next term. Investors cannot observe the probability directly; they can only demand a premium. In 2025 the "Fed risk premium" became a standard line item in dollar-bearish notes from Tokyo to London, and Nam identified the Trump–Fed fight as one of the three pillars of the sell-America narrative.

Iran, oil — and the safe haven that wasn't

The third shock was geopolitical. On June 13, 2025, Israel launched a large-scale air campaign against Iran's nuclear and military sites; on the nights of June 21–22 the United States joined directly, sending B-2 bombers against the Fordow, Natanz and Isfahan facilities. Oil spiked on fears of a closure of the Strait of Hormuz, before a ceasefire took hold on June 24 and prices fell back.

The market's response contained the most revealing signal of the half-year: in a textbook Middle East war involving direct U.S. military action, the dollar barely rallied. The haven flows of record went to gold — which had already touched an all-time high above $3,400 an ounce in April and finished June near $3,270 — and to the Swiss franc. The franc's quiet strength through the spring had already told macro traders something; June confirmed it. When war itself cannot summon a dollar bid, the safe-haven attribute is being discounted for reasons that predate the war.

The $3.4 trillion signature: debt and the megabill

The day before Nam's NPR segment aired, President Trump signed the One Big Beautiful Bill Act — the sweeping tax-and-border package that extends the 2017 tax cuts, adds new breaks for tips, overtime and domestic manufacturing, and expands border-security spending. The Congressional Budget Office scored the law as adding roughly $3.4 trillion to the national debt over ten years, on top of a debt stock already above $36 trillion. Annual net interest on that debt is approaching $1 trillion — a figure that was manageable, as Nam noted, "when interest rates were low. But they are not anymore, and paying off that debt is getting very expensive."

This is the structural layer beneath the cyclical trade. A reserve currency is a promise that the issuer's fiscal and monetary institutions will protect the real value of claims denominated in it. America's 2025 combination — deficits near 6%–7% of GDP in a fully employed economy, a legislature adding trillions more, and a president openly pressuring the monetary authority — does not break that promise, but it thins it. Harvard economist Kenneth Rogoff, who has studied global currency regimes for decades and recently published a book on the dollar, framed it for NPR in deliberately gradual terms: "The dollar's reserve currency status has been fraying at the edges for at least a decade, and the process is accelerating under Trump." Fraying is not snapping. But direction matters to holders of trillions of dollars of claims.

The scoreboard: the world outperformed Wall Street

The sell-America trade was, in its simplest form, a relative-return story — and the first-half scoreboard explains its momentum. The S&P 500 rose a little more than 6% in the first half of 2025, a respectable result given that the index had fallen nearly 20% peak-to-trough during the April tariff panic before staging one of the fastest recoveries on record. But as Nam observed on NPR, the two indexes he watched most closely "have far outperformed the U.S. stock markets" — above all Germany's DAX and Hong Kong's Hang Seng.

• S&P 500: up roughly 6% in the first half — good in absolute terms, second-tier in relative terms.
• DAX: up around 20%, propelled by the March fiscal U-turn — Berlin's decision to exempt defence spending from the debt brake and create a €500 billion infrastructure fund re-rated European growth expectations.
• Hong Kong's Hang Seng: up roughly 21%, its strongest first half in years, as Chinese stimulus and the DeepSeek-driven AI re-rating pulled global money back into Hong Kong-listed equities.
• Gold: up about 25% in the first half — the best six months for the metal in decades — as central banks and funds both accumulated.
• Dollar index: down more than 10% — the connective tissue making every one of those non-dollar returns even better for a non-U.S. investor.

The rotation was self-reinforcing in the classic way: outperformance attracted flows, flows bought euros and Asian currencies, currency gains added to non-U.S. investors' returns when measured at home, and the improved scoreboard drew the next tranche of capital. None of this required anyone to declare the American century over. It only required a marginal allocator to notice that, for the first time in years, the rest of the world was paying better.

The other side of the ledger: who gains from a weaker dollar

The decline is not uniformly bad news for the United States, and Nam was careful to say so on air. A cheaper dollar is a competitiveness program that no industrial-policy bill could deliver as quickly:

• Manufacturers and exporters: domestic producers who "have long been struggling because a stronger dollar makes them less competitive against imports," in Nam's words, get automatic price relief in both home and export markets.
• Tourism-reliant businesses: the same weak dollar that makes a Paris holiday more expensive for an American makes Times Square cheaper for a European — "good news if you're a shop owner in Times Square," Nam noted.
• Multinationals' earnings: roughly 40% of S&P 500 revenue is earned abroad; each fall in the dollar mechanically fattens translated overseas profits.
• Emerging-market borrowers: dollar-debt service costs fall in local-currency terms, historically one of the most reliable tailwinds for EM credit and equities.
• Commodity producers: most raw materials are priced in dollars; a weaker dollar supports nominal commodity prices and producer incomes.

The losers are equally identifiable: importers and the U.S. consumers who ultimately pay tariff-plus-weak-currency prices, and foreign holders of unhedged dollar assets. The political economy is awkward — the administration that welcomed the manufacturing logic of a softer dollar was simultaneously attacking the Fed to cut rates and signing tariffs that push import prices up. Currency, fiscal and trade policy in 2025 were pulling in directions that economists would struggle to reconcile, which is itself a source of the uncertainty premium.

Is dollar dominance actually at risk?

Here the evidence cuts both ways, and the honest answer Nam gave — "that's the trillion-dollar question" — deserves to be broken into parts.

The case for decline is a trend, not an event. According to the IMF's COFER data, the dollar's share of allocated global foreign-exchange reserves has slid from roughly 71% in 2000 to just under 58% in 2025. Central banks bought more than 1,000 tonnes of gold for a third consecutive year in 2024 and kept buying in 2025; on some calculations gold overtook the euro during the first half of the year to become the second-largest reserve asset after the dollar. Sanctions-driven asset freezes since 2022 taught official holders that dollar assets carry a jurisdictional risk no yield compensates. And the 2025 shocks — tariff whiplash, Fed threats, a $3.4 trillion fiscal expansion at full employment — are exactly the "long-standing issues," as Nam framed them, that a reserve currency is not supposed to generate.

The case against decline is the absence of an alternative. No other sovereign bond market approaches the scale, liquidity and openness of the roughly $28 trillion Treasury market; the eurozone remains a patchwork of fiscal sovereignties without a unified safe asset at scale; the renminbi sits behind capital controls that Beijing has shown no appetite to lift. Reserve shares move in decades, not semesters: the sterling-to-dollar handover after World War I took a generation, and sterling remained a major reserve currency long after Britain ceased to be the world's largest economy. Rogoff's own formulation — "fraying at the edges" — describes slow diversification, not a rupture.

The synthesis is uncomfortable but defensible: 2025 did not end dollar dominance — it priced an uncertainty premium into it. The dollar remains the world's currency by a wide margin, and a 10% six-month decline reverses easily enough when policy stabilizes. But the question "will the dollar ever lose its dominance?" has, in Nam's phrase, migrated from an academic debate to "a genuine question being asked by many investors around the world." That migration is itself a fact about capital flows, because investors who ask the question hedge it — and hedging is the sell-America trade in its purest form.

What to watch in the second half of 2025

1. Tariff deadlines. The August 1 letters and the expiry of each 90-day framework will decide whether the policy firehose slows or intensifies; every extension of uncertainty keeps the hedging bid alive.
2. The Fed's July, September, October and December meetings. Whether cuts arrive — and whether they arrive after presidential demands, which would read as capitulation, or after clean inflation data, which would not.
3. The chair succession. Powell's term ends in May 2026; formal or informal signalling of a replacement will be read as a test of Fed independence long before any Senate vote.
4. TIC flow data. The Treasury's monthly capital-flow releases are the closest thing to an official scoreboard for foreign buying and selling of U.S. stocks and bonds.
5. Long yields and the fiscal path. The 10-year and 30-year Treasury yields now carry the megabill's debt trajectory; sustained term-premium widening would confirm that bond investors, not just currency traders, are charging for American risk.
6. Gold and reserve statistics. Central-bank purchase reports and the quarterly COFER release track the slow structural variable — official-sector diversification — that no tariff deal can reverse quickly.

Epilogue: how the second half actually unfolded

With the benefit of hindsight, the checklist above resolved partially in each direction. The August tariff deadlines were mostly renegotiated or extended rather than detonated; the Federal Reserve resumed cutting in September and eased twice more before year-end, doing so on labour-market data rather than, visibly, on presidential command. The feared full-blown "sell America" exodus never materialized: foreign investors trimmed and hedged, but U.S. AI and semiconductor leadership kept attracting capital through the autumn. The dollar stabilized against most peers in the fourth quarter, yet finished 2025 down close to 9% — its worst calendar year since 2017 and a decline that turned the mid-year "blip-or-trend" debate into a standing item on every 2026 allocation agenda.

Bottom line

Exchange rates, as Nam reminded listeners, go up and down; societies nonetheless read them as markers of national standing — "of virility," as one analyst told him. The dollar's history makes it more than a price. What happened in the first half of 2025 was not a collapse of the American financial position: the United States still has the deepest markets, the dominant currency and, as the S&P's recovery showed, extraordinary attractor power. What happened is that the world's investors stopped taking that for granted — and started charging for it. Whether the sell-America trade becomes a 2025 blip or the opening chapter of a long diversification depends on choices in Washington, not on charts. As Nam concluded in his NPR assessment: the sell-America trade "is not just about Trump. It's about these long-standing issues that the U.S. has yet to resolve." The dollar's worst half-year since 1973 is, in that reading, a bill arriving for problems that accumulated long before it — with the interest now compounding.