Strategist David Roche Predicts 15%-20% US Dollar Decline Over Next Decade Due to Trade War Impact

David Roche, former Morgan Stanley banker and president of Independent Strategy, warns that the US dollar could depreciate by 15%-20% over the next five to ten years due to the impact of former President Trump's trade policies. He attributes the decline to reduced foreign investment and a global shift away from US assets. Roche also predicts a potential US recession by the end of 2025, linked to weakening investor confidence and the effects of the trade war. He highlights the overvaluation of the dollar and the risk of a funding crisis due to decreased demand for US Treasurys.

A Dollar in Decline

According to Roche, the US dollar is already showing signs of sustained weakness. Since Trump resumed office and reignited his trade war agenda, the US Dollar Index — which tracks the dollar against a basket of major currencies — has fallen by 8%. Roche believes this is just the beginning of a broader downward trend.

“The value of the greenback has tumbled since Trump embarked on his trade war,” Roche told Business Insider. He attributes the decline to a loss of confidence among foreign investors, who are increasingly pulling capital out of US markets. Goldman Sachs estimates that foreign investors sold approximately $63 billion in US equities in the two months leading up to April 25, 2025.

Roche emphasized that this figure is relatively small compared to the total foreign ownership of US stocks, which stands at around 18%. “$63 billion is nothing,” he said, suggesting that the trend of capital flight could accelerate.

Erosion of American Exceptionalism

At the heart of Roche’s forecast is a belief that Trump’s aggressive tariff policies are undermining the global perception of the United States as a safe and exceptional investment destination. “I think the tariffs do damage to the reputation of the United States, the concept of exceptionalism where everybody puts their money in the US,” Roche said.

He argues that as the US underperforms relative to other economies, global investors are reallocating their capital elsewhere. This shift, he says, is placing downward pressure on the dollar and weakening the performance of US assets more broadly.

Real Effective Exchange Rate Signals Overvaluation

Roche’s projection of a 15%-20% decline in the dollar is based in part on the real effective exchange rate (REER), a metric that adjusts for inflation and trade-weighted currency values. According to data from the Bank for International Settlements, the US REER stood at approximately 112 in March 2025 — about 20% higher than its level in 2008, which Roche identifies as the point when the dollar began to become overvalued.

This overvaluation, he argues, is unsustainable in the face of deteriorating investor sentiment and weakening demand for US assets.

Recession Risk by End of 2025

Beyond the long-term currency outlook, Roche also warns of a more immediate economic threat: a potential US recession by the end of 2025. He links this risk directly to the weakening dollar and the broader consequences of Trump’s trade war.

“Weaker demand for US Treasurys could lead to problems for government funding,” Roche said. While Trump has claimed that tariffs would bring “massive amounts of money” into the US, Roche disputes this, arguing that tariffs actually hinder trade and reduce foreign capital inflows.

He added, “There could be a crisis around the current budget when the market wakes up to the fact that the figures are not going to be funded by tariffs and the foreigners are not putting as much money into the US.”

Market Volatility and Investor Sentiment

The trade war has also contributed to heightened market volatility. In early April 2025, yields on US government bonds spiked amid a wave of investor uncertainty. This volatility has further eroded demand for US assets, compounding the downward pressure on the dollar.

Roche believes that the global shift away from the US as a financial safe haven will be gradual but persistent. “A broad shift away from the US could take five to 10 years,” he said, noting that such seismic changes in global trade and capital flows take time to materialize.

Broader Market Consensus

Roche’s outlook is echoed by other major financial institutions. Deutsche Bank recently described the current environment as a “dollar bear market,” citing a reduced global appetite to fund the US’s growing twin deficits — the budget deficit and the current account deficit.

Goldman Sachs’ chief economist Jan Hatzius also weighed in, stating that the dollar’s depreciation “reinforces our view that the ‘incidence’ of higher US tariffs will fall predominantly on American consumers, not foreign producers.”

References

• Why one market vet sees more big pain coming for the dollar — and a recession by year-end
• Why one market vet sees more big pain coming for the dollar — and a recession by year-end
• Bank Of England Raises Prospect Of Cheaper Mortgages With Interest Rate Cut To 4.25%