US Dollar Continues Downward Trend in September 2025: What Investors Need to Know
Current Dollar Performance
The US Dollar Index (DXY) has recently fallen to 97.7710, showing a decline of 0.59% in the latest session. The currency’s weakness is evident in its performance over the past year, with a 0.41% decrease over the last month and a more substantial 3.38% drop over the past 12 months.
Key Factors Driving Dollar Movement
The dollar’s current trajectory is being shaped by several crucial factors, including policy uncertainty, fluctuating growth rates, and shifting global capital flows. The Federal Reserve’s decision to maintain steady rates, while other central banks like the ECB and BoE implement rate cuts, has contributed to the dollar’s weakening.
Fiscal concerns are mounting, particularly due to the OBBBA’s $4.1T price tag and uncertain revenue outlook. These policy and fiscal risks, combined with high valuations, have prompted investors to reassess their USD-denominated asset holdings.
Global Market Impact
The impact on global markets has been significant, with flows into U.S. equities weakening considerably this year. Non-U.S. domiciled ETFs investing in U.S. equities have seen their average net flows decrease from $10.2B in early 2024 to just $5.7B in 2025. European investors are increasingly focusing on local assets, with European-focused ETFs receiving record inflows of $42B year-to-date as of July-end.
Future Outlook
Despite the current weakness, the dollar’s position as the global reserve currency remains secure, thanks to its trustworthiness and the absence of viable alternatives. While its share of foreign currency reserves currently stands at 58%, there may be a gradual decline as central banks diversify their holdings.
The short-term outlook maintains a weak bias, particularly if tariffs and inflation pressures continue to impact growth. However, the dollar’s long-term structural strength as the world’s primary reserve currency persists, though the timing of any potential rebound remains uncertain. Analysts expect the dollar’s softness to continue into Q4 2025, especially if the Federal Reserve implements multiple rate cuts, though safe-haven flows could quickly alter this trajectory.
