The declining U.S. dollar: 5 things you need to know

The U.S. dollar is off to a weak start in 2025.

The U.S. Dollar index declined 4.3% from the start of the month, according to Investopedia, and since mid-January, the dollar has fallen 9% against other currencies, the sharpest decline in three years, according to The Associated Press.

The impact is being felt on Long Island. Stephanie Sack, who owns the North Fork Apothecary clothing boutique in Cutchogue, has had to cut back on some imported orders.

“[Shipping] expenses have shot up from $50 to around $300 [from Canada], and I can’t pass that on to my clients because it just doesn’t make sense," Sack said, adding that most of her inventory comes from abroad.

Even the Federal Reserve, the nation's central banking system, has sounded unsure how to move forward.

At its March 19 meeting, two weeks before President Donald Trump announced sweeping tariff rates on U.S. trading partners, Chairman Jerome Powell said: "We think that the right thing to do is wait here for greater clarity about what the economy is doing."

Due to the economy's ongoing volatility with what feels like ever-changing tariff and trade policies, Long Islanders may be confused about what this all means to their everyday lives.

What is the U.S. Dollar Index and how important is it?

The U.S. Dollar Index is the measurement of the dollar compared to foreign countries’ currencies including the euro, yen, pound, Canadian dollar, Swiss franc and the Swedish krona. The index goes up when the strength of the U.S. dollar goes up compared to other countries.

"It’s an overall index," said Anoop Rai, a professor of finance at Hofstra University, who noted that "it’s better to look, individually, at different currencies. It’s just one picture of whether the dollar is appreciating or depreciating."

Why is the value of the dollar important?

"The dollar is losing value because the Federal Reserve is lowering interest rates and therefore imports will be more expensive," said financial adviser David Gustin, of Jericho-based DMG Portfolio Management, who explained that lower interest rates make the dollar less valuable to foreign investors.

If the dollar is appreciating, it’s getting stronger, according to Rai.

"That means you need less dollars to buy a foreign currency," he said.

But if the dollar is depreciating, you will have to pay more for a foreign currency.

A weak or strong dollar can have both positive and negative impacts for the economy and consumers. When the dollar is strong, imported products are cheaper, from tech items to foods from other countries.

Additionally, a strong dollar means your money will be worth more if you travel abroad.

When the dollar is weak, imported products become more expensive, but exporters benefit because domestic-made products become more valuable to foreign markets.

The weak dollar, though, can lead to high interest rates on important expenditures such as a mortgage or car payment.

Why is the dollar losing value and what’s the impact?

According to a report by Investopedia, the U.S. dollar is losing value because of concerns over the Trump administration’s unpredictable economic and foreign policies.

"In normal circumstances, what Trump is fighting for is to cut the deficits between exports and imports," Rai said. "We’ve been importing more than exporting since 1981."

But Trump's April 2 "Liberation Day," when he announced steep tariff rates on more than 100 trading partners, coupled with many of them being walked back just a week later, have led to a lack of confidence among investors.

What does this mean for Long Island?

Businesses that rely on imported products or services may have to lay off employees to cut costs and continue operations.

But Rai said he’s not too concerned about major inflation related to the exchange rate.

"Knowing Trump and his team, [including] Secretary of the Treasury Scott Bessent ... they are cautious and will back down when needed," he said.

What’s ahead for the dollar in 2025?

"Experts are divided on their opinions as to whether the dollar will rise or fall based on interest rate moves," Gustin said, noting the Federal Reserve has projected that interest rates will decline at least one time in 2025, with the dollar falling along with the drop in interest rates.

While the dollar is in decline, Rai doesn’t foresee a major disruption in important economic factors like the supply chain, pointing to the COVID-19 pandemic as a moment where the country bounced back.

"There's going to be some impact, but nothing that could be a major hit on unemployment or inflation," he said. "We’ve always been very resilient."