There's perhaps no better symbolic representation of America's financial might than the U.S. dollar. And right now, the world's top currency is taking a big, mighty punch.
The dollar has slumped more than 10% this year, posting its worst decline in the first six months of a year since 1973, back when President Nixon shocked the world by detaching the dollar's value from gold.
The decline reverses a long stretch of annual gains for the dollar — and it's especially confounding given that the U.S. economy is still doing well.
"America was already great," says Kaspar Hense, a senior portfolio manager at RBC BlueBay Asset Management.
"We are coming from a very strong dollar level where U.S. exceptionalism was what everybody was speaking about in financial markets," he adds.
Many investors now fear the decline could reflect a new reality for the U.S., just after the country celebrated its 249th birthday.
A series of chaotic policies and statements by Trump — from tariffs to attacking the Federal Reserve — has shaken some of the confidence investors around the world had long held in the U.S.
But it goes beyond that. The country's debt is ballooning — and will grow even more with the GOP megabill that was passed by Congress last week. Meanwhile, there are real concerns about what the deep political divisions will mean for the U.S.
The big question now is: Does this re-assessment reflect a long-term shift or just a momentary blip?
The case against the American dollar
Whether one agrees or disagrees with President Trump, one thing is clear: His second term is shaping up to be quite different — and it's unnerving many investors, both in the U.S. and abroad.
The chaotic rollout of tariffs has led to widespread uncertainty across businesses in the U.S. and around the world.
But President Trump has also disregarded other norms. He's picked a fight with the Federal Reserve and Chair Jerome Powell over interest rates, for example, upending a tradition upheld by most American presidents not to interfere with the independence of the central bank.
And at a time when there are already serious concerns about the country's finances President Trump on Independence Day signed a massive bill passed by Congress last week that will rack up trillions of dollars in additional debt.
Of course, the U.S. debt load has been rising significantly for years ever since President Clinton and Congress managed to balance the budget in the 1990s.
Kenneth Rogoff, a former chief economist at the International Monetary Fund, and now a professor at Harvard, says those years of inaction to deal with the rising debt levels are contributing to the dollar's decline.
"How much do investors want to be overweight in dollars when they can sort of see this slow-motion train wreck coming?," he asks. "While I wouldn't read too much into the dollar's fall this year, there is no question that there is this broader underlying trend of moving away from the dollar — and Trump's been an accelerant."
Foreign investors have indeed responded — by selling American stocks and bonds, which has pushed the dollar sharply lower. That's because when a foreign investors dump shares in a company for example, they then effectively sell the dollar and convert it back to their home currency.
A widely followed survey by Bank of America of fund managers around the world reflects this selling quite starkly. Fund managers had preferred U.S. stocks over international stocks for most of the past two decades — but that's changed this year.
But the latest survey out in mid-June showed a startling statistic: Only 23% now preferred U.S. stocks.
That's amply reflected in how stocks around the world have performed this year.
Yes, the S&P has just hit record highs, recovering from steep losses earlier this year, helped by a good performance in sectors like technology. But consider this: Even with the most recent gains the S&P 500 — representing the biggest 500 companies in the U.S. — is up more than 6% this year.
However, that compares to both Germany's DAX index and Hong Kon's Hang Seng Index, which are up nearly 20% this year as of the end of last week. Several other international stock markets have also gained significantly.
The case for the American dollar
Not everybody is convinced that the dollar's decline is an alarming trend.
Under this thinking, the U.S. has gotten used to outperforming global markets for years, so a months-long reversal is not necessarily catastrophic. It's just a re-adjustment that had been coming.
And then there's a long-held market adage: TINA, as in, There Is No Alternative.
The dollar is by far the most widely-held currency in the world, used by everybody from governments to multinational companies to drug cartels.
And there's no bigger and more diverse market than the U.S., whether it be stocks or government bonds.
There are also benefits to a weaker dollar.
Yes, a weaker dollar makes it more expensive for Americans to travel abroad, but it's good domestic tourism, while exporters like Apple, which earns a substantial portion of its revenue from countries abroad.
And American companies that have long faced cheaper imports would get a bit of a boost. The weaker dollar would make foreign products a little more expensive — even more so when tariffs kick in — giving domestic manufacturers a major leg up.
"There's a temptation for a lot of people to think of the strength of your currency as some sort of national virility symbol," says Kit Juckes, the Chief FX Strategist at Societe Generale. "It really isn't."
"You shouldn't expect to have a super, super, super strong currency forever," Juckes adds, citing the impact on workers in sectors such as manufacturing or agriculture that become less competitive when the dollar is strong.
Currencies like the euro or yuan could challenge the dollar' dominance
So then, what's next for the dollar? That, as it turns out, is the trillion-dollar question
Despite the dollar's steep decline this year, few analysts are willing to make sweeping judgements about what it symbolizes for the U.S. At least, not yet.
But the concerns remain about whether the dollar's decline is a reflection of a long-term reassessment of the U.S. financial standing in the world — and a sign that the overwhelming dominance of the dollar might be coming to an end.
Rogoff, who recently authored the book "Our Dollar, Your Problem," says the U.S. has long depended on foreign investments as a critical source of capital, investments that have helped make the dollar the world's reserve currency.
But as the U.S. faces entrenched problems like surging debt levels, perceptions about the U.S. could change.
"The dollar franchise isn't gone, but it's weakening materially," he says.
Rogoff believes that over the next 10-20 years the world will see "a more tri-polar system" as the euro, the Chinese yuan, and even crypto currencies, emerge to challenge the dollar's dominance.
"The dollar's reserve currency status has been fraying at the edges for at least a decade," Rogoff says. "And the process is accelerating under Trump."
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