AYESHA RASCOE, HOST:
You may have heard the expression sound as a dollar. That's because the U.S. currency has long been seen as a sign of the country's economic might. These days, though, the dollar isn't as strong. NPR senior business editor Rafael Nam joins us now. Welcome to the show.
RAFAEL NAM, BYLINE: Hey, Ayesha.
RASCOE: The dollar fell 9% last year when compared to other major currencies. That's its worst performance since 2017. Why?
NAM: Well, there are some big reasons why. The first one is a little more technical. The Federal Reserve has been cutting interest rates, and when it comes to currency markets, there's a basic rule of thumb. When interest rates go up, the value of currencies tends to go up too. And when interest rates go down, like they are now, the value of currencies tend to go down too. So that's the geeky reason. But there is something more fundamental going on here. The big decline in the dollar also reflects the incredibly turbulent year the U.S. economy just had.
I mean, let's recap here - right? - Ayesha. In 2025, the U.S. unveiled the highest tariffs in decades. President Trump picked a fight with the Federal Reserve and threatened to fire Chairman Jerome Powell. And the U.S. had its longest government shutdown ever. And here's a basic rule of thumb as well. Currency markets lack predictability. And it's fair to say that under this second Trump administration, things have been very unpredictable. But you know, something, as bad as things were, it could have been worse.
RASCOE: How so?
NAM: You know, because there were times last year when it looked like there could be a historic decline in the dollar. U.S. financial markets have been a top investment destination for decades, and everyone from private investors to banks to even other governments like to hold U.S. dollars. But in the first half of the year, everybody was concerned that there could be a sell America trade, essentially, that foreign investors will sell off their American investments because things were too unpredictable. But that didn't quite pan out. There was some selling of American assets, but foreign investors did not really head to the exits.
RASCOE: So what kept foreign investors in the U.S.?
NAM: So it was a couple of things. One is that the U.S. and the world adjusted to tariffs better than many had expected. We didn't see trade wars all over the world, for example, with other countries retaliating against U.S. tariffs. And that's not to say that tariffs haven't brought economic pain - they have. But we didn't see that big spike in inflation or that big hit to economic growth either. And the second thing is the U.S. turned out to have an ace up its sleeve, so to speak, and that's AI. AI is a hot trade in Wall Street, and the U.S. is the place to be. I talked to Marc Chandler, the chief market strategist at Bannockburn Capital Markets, and this is how he put it.
MARC CHANDLER: Whether it's AI, semiconductor chip design, the U.S. is still on the leading edge, and I think that still attracts flows into the U.S.
NAM: And Chandler also added that the dollar was a top-performing currency for years, and as a result, it had been long due for a pullback.
RASCOE: So where do we go from here?
NAM: Well, for now, Ayesha, the dollar could see more declines. The Fed looks like it will continue cutting rates. And remember, lower rates usually leads to lower currency values. But there is some optimism about the U.S. economy, which could end up helping the dollar. So essentially, more declines, but maybe not as dire as investors once thought. But the huge caveat here, of course, is that after such an unpredictable year, making forecasts on Wall Street is a tough business.
RASCOE: That's Rafael Nam. Thank you so much for joining us.
NAM: Thank you, Ayesha.
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