The International Monetary Fund (IMF) has said in its World Economic Outlook update for July 2025 that the US dollar has weakened considerably since April, although yields in the United States are higher than those in other advanced economies such as the euro area.

The Fund said some investors point out structural factors driving dollar depreciation, including shifts away from US securities, though current data on cross-border capital flows does not suggest a broad-based pullback.

“Increased hedging against dollar weakness resulting from investor concerns about changes in the historical hedging properties of the dollar has contributed to its depreciation in part.

However, whether such a switch in the currencies’ perceived risk-hedging properties is temporary or proves longer-lasting remains uncertain at this juncture,” the report said.

The report however, noted that many emerging market currencies have appreciated, and capital inflows have resumed since April, with investors seeing space for some emerging market central banks to ease.

The report further indicated that global financial conditions have eased since the April Global Financial Stability Report, reverting toward accommodative conditions by historical standards.

Equity valuations have returned to lofty levels, and corporate credit spreads have tightened to the lows attained at the beginning of the year, whereas market volatility has declined, despite still-elevated uncertainty regarding trade policy.