90% of Foreign Exchange Transactions Are Conducted in U.S. Dollars, With Approximately USD 7.5 Trillion Traded Daily in the Forex Markets[1]. Internationally, 58% of reserves are held in dollars[2]. The U.S. dollar remains the most important global currency. However, it is currently going through a period of weakness, reminiscent of the Plaza Accord era in the 1980s.
In 1985, the dollar had appreciated by 44% against a basket of major currencies over five years, driven by a combination of tight monetary policy in the U.S. and expansive fiscal policy[3]. This increase in the dollar’s value placed growing pressure on U.S. manufacturing by making exports more expensive and imports relatively cheaper, and contributed to a rising budget deficit, which reached USD 112 billion in 1984.
In response, the Plaza Accord was implemented in 1985 by the G5 nations—France, Germany, United Kingdom, United States, and Japan—with the collective goal of weakening the U.S. dollar and stimulating domestic demand in Japan and Germany. The strategy proved effective: by 1987, the dollar had fallen by 40%, while the German mark and the yen had appreciated significantly. By 1991, the U.S. budget deficit had dropped to USD 30 billion.
Parallels Between the U.S. Dollar Now and at the Start of the Plaza Accord
U.S. Dollar Index (DXY), Indexed: 1/1/85 and 1/1/25 Respectively = 100
The U.S. Dollar Index (DXY) measures the value of the dollar against a basket of six foreign currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. Before the creation of the euro, the index included ten currencies—the ones currently included (except the euro), plus the German mark, French franc, Italian lira, Dutch guilder, and Belgian franc. The euro replaced the latter five.
Sources: Bloomberg Finance L.P., DWS Investment GmbH, as of 07/21/2025.
Our chart highlights that the sharp decline in the dollar so far in 2025 follows a path similar to the dollar’s drop in the early phase of the Plaza Accord in 1985[4]. There are parallels with the past that suggest a continued depreciation of the dollar in the coming years. The current U.S. president is focused on strengthening the manufacturing sector and reducing the trade deficit. At the same time, political uncertainty in the U.S. is rising, and central banks are gradually reducing their dollar holdings in favor of gold, the euro, or the Chinese renminbi. Meanwhile, European countries are actively stimulating their own economies.
However, the downward trend of the dollar may not be as intense or rapid as in 1985, mainly because there are no coordinated cross-border agreements to weaken the currency. Instead, the change in the dollar’s value appears to be driven by shifts in investor sentiment, with growing doubts about the U.S. as a safe haven[5], prompting capital reallocation.
We are closely monitoring the dollar’s movement, but we currently do not see major risks of a massive and rapid devaluation. The dollar remains the undisputed global currency due to its high liquidity, its status as the most traded currency in the world, the size of the U.S. economy, and the depth and efficiency of its financial markets. At present, there is no single and realistic alternative capable of replacing it. Our longer-term forecasts assume a continued weakening of the U.S. currency, but not a dramatic devaluation comparable to the Plaza Accord[6].
Opinion Piece by Xueming Song, Currency Strategist at DWS
References
See “Global FX trading hits record $7.5 trln a day – BIS survey,” Reuters; as of October 2022
See “U.S. Dollar Defends Role as Global Currency,” Statista; as of January 2025
See “The Plaza Accord 30 Years Later,” scholar.harvard.edu; as of December 2015
Bloomberg Finance L.P.; as of July 21, 2025
Financial safe havens are investments or assets that are expected to retain or increase in value during times of market turbulence.
For a more detailed assessment, read our CIO Special, “First Cracks in the Dollar’s Dominance,” as of 7/16/25.
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This information is subject to change at any time, based upon economic, market and other considerations and should not be construed as a recommendation. Past performance is not indicative of future returns. Forecasts are not a reliable indicator of future performance. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect. Alternative investments may be speculative and involve significant risks including illiquidity, heightened potential for loss and lack of transparency. Alternatives are not suitable for all clients. Source: DWS Investment GmbH.
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