¼ Dollar – United States

In 2007, the United States currency situation was characterized by a period of relative stability for the U.S. dollar on foreign exchange markets, masking severe underlying economic vulnerabilities. The dollar had been in a broad, gradual decline since 2002 against major currencies like the euro and yen, driven by large U.S. trade and budget deficits. However, this decline was orderly, and the dollar remained the world's dominant reserve currency. The Federal Reserve, having raised interest rates to combat inflation earlier in the decade, began cutting them in September 2007 in response to growing distress in the housing market. This policy shift started to exert new downward pressure on the dollar's value as yield differentials narrowed.

The core of the currency's underlying fragility was rooted in the domestic financial crisis that erupted that year. The collapse of the subprime mortgage market led to a freezing of credit, massive write-downs at major financial institutions, and the first waves of the "Great Recession." While the dollar initially experienced safe-haven flows during moments of acute panic (such as in August 2007), the fundamental outlook was bleak. The crisis revealed profound weaknesses in the U.S. financial system and foreshadowed a deep economic downturn, which threatened to erode long-term confidence in the dollar. The nation's external imbalances and the prospect of aggressive monetary easing placed the currency on a precarious path.

Consequently, by the end of 2007, the U.S. currency stood at a crossroads. The external value of the dollar was still largely supported by its global role and residual confidence, but the domestic foundations for its strength were crumbling. The Federal Reserve's shift toward an aggressive easing cycle, initiated to rescue the faltering economy, set the stage for a more pronounced dollar depreciation in the years to follow. Thus, the year served as a pivotal transition from a period of controlled decline to one where the dollar's fate became inextricably linked to the unfolding financial catastrophe and unprecedented policy responses.