The US Dollar Index (DXY) experienced a significant decline in 2025, dropping approximately 9.6% to close the year at 98.28. This marks the steepest annual fall since 2017, when the index fell by around 10%. The decline was driven by three Federal Reserve rate cuts, which reduced the federal funds rate to 3.50%-3.75%, narrowing yield differentials and diminishing the dollar's appeal in carry trades. Trade policies under the Trump administration, including tariffs on imports from China and Europe, further pressured the dollar by disrupting supply chains and raising inflation risks. Despite a fiscal year 2025 budget deficit of $1.8 trillion, the dollar's decline was primarily attributed to monetary easing and trade tensions. Analysts view the drop as a cyclical shift rather than a threat to the dollar's reserve currency status, with potential stabilization expected in 2026.