The U.S. economy had a different start to the year. Halfway through, the impulsive policy of President Donald Trump is also not helping to preserve the so-called "mighty" status of the dollar, which has seen the worst performance in over five decades.
Since the return of Trump to the White House, uncertainty about Washington's financial policy has caused notable concern as the U.S. debt pile continues to rise. Analysts, meanwhile, say the president's "One Big Beautiful Bill" could add extra pressure to it in the upcoming decade.
Concerns over the health of the U.S. economy and growing debt have also been visible on financial markets as U.S. bond yields have climbed – an indication that investors are worried about the sustainability of the debt of the world's top economy.
Those concerns have also affected the dollar, which, as the global reserve currency, has usually been seen as a safe haven currency. Foreigners have to purchase dollars if they want to buy U.S. bonds, which have also been seen as one of the safest assets in times of volatility.
However, the dollar lost more than 10% during the first half of the year – its worst performance since 1973. On Thursday, it remained close to this week's 3.5-year lows, hours ahead of a key jobs report, and as a U.S.-Vietnam trade accord fanned expectations for other potential deals ahead of July 9 when U.S. tariffs take effect.
Quickly changing dynamics related to tariffs, uncertainty and unpredictability when it comes to the next moves of Trump have dented investors' confidence in the world's largest economy. Recent reports, in contrast, revealed growing interest in Europe.
Data from LSEG's Lipper Funds show that more than $100 billion has flowed into European equity funds so far this year – up threefold from the same period last year – while outflows from the U.S. more than doubled to nearly $87 billion.
The euro, a common currency used in 20 EU countries, also strengthened compared to the greenback in the recent period.
A common explanation for the weakening of the dollar versus a basket of currencies is the impact of Trump's tariffs on the U.S. economy in the long term, coupled with the expectations that it might no longer outperform other major economies.
The U.S. Treasury raises funds by issuing three types of debt instruments: short-term bills, medium-term notes and long-term bonds. They carry a face value but are sold at a discount, with that price helping determine the yield, or rate of return, for investors.
Higher yields indicate investors are demanding a higher rate of return to hold U.S. debt, which can be an indication of concern over whether they will eventually be repaid.
The yields on 30-year U.S. bonds rose above the symbolic level of 5.0% in May, but have since retreated to around 4.8%.
"Most of the concerns stem from the 'One Big Beautiful Bill,' the law supported by the White House that includes measures to prolong tax cuts brought in by Donald Trump during his first term," said Gregoire Kounowski, an investment advisor at asset manager Norman K.
"If the text remains unchanged, it would add $3 to $4 trillion to the U.S. debt," he added.
The bill faces a final vote in the U.S. House of Representatives on Thursday after squeaking through the Senate on Tuesday.
When Moody's cut the U.S.'s top triple-A credit rating in May, it cited rising levels of government debt and the impact of the interest costs on the U.S. budget.
"It was a warning signal for markets and put the trajectory of U.S. debt in the center of concerns," said Raphael Thuin, head of capital market strategy at Tikehau Capital.
U.S. debt now totals more than $36.2 trillion, according to the U.S. Treasury, or 120% of annual economic output.
Around $29 trillion of that is bonds that the Treasury sells on markets to investors: principally banks, pension funds and foreign governments.
Foreign governments currently own $9 trillion in U.S. debt, with Japan, Britain and China the top holders.
China had until March been either the top or the second-largest holder of U.S. government debt.
Since the U.S.-China trade war in 2020 during Trump's first term in office, "China has gotten rid of U.S. debt in favour of gold. It didn't sell its bonds, but it didn't replace those that matured," said Aurelien Buffault, an asset manager at Delubac AM.
The rest of the world buys U.S. debt as they want to hold a solid dollar-denominated asset.
The size of the U.S. debt market also makes it attractive to investors.
"It is about 20% larger than the European sovereign debt market in terms of capitalization," said Guy Stear, head of developed markets research at Amundi.
That makes it easier to buy and sell U.S. debt quickly.
U.S. debt has until recently also benefited from being considered a "safe haven" investment, as the U.S. government was seen as a reliable borrower.
However, since April, investors have started to pass over U.S. debt and the dollar when seeking safe haven assets, noted Stear.
In the current environment, "investors are looking for alternative safe havens, that is, a currency and assets that protect them when volatility and increased uncertainty," said Imene Rahmouni-Rousseau, director general of market operations at the European Central Bank (ECB).
"It is precisely the euro and European government bonds that have played this role of protective shield," and "for the first time since the 2011 financial crisis, European financial markets are considered very attractive by investors" globally, she opined.
