How investors can ride on weaker dollar

The first-half of 2025 saw the worst performance of the US dollar (USD) in over 50 years.

- STEVE BRICE

This comes on the back of an extended, multiyear period of USD strength. By its peak in January this year, the US dollar had risen almost 50 per cent in inflation-adjusted terms against a trade-weighted basket of currencies of major US trade partners from the low in July 2011. The outlook for a structurally weaker USD in the coming years means that investors are likely to have to unlearn the lessons of the past 15 years and plan accordingly.

Before we discuss the implications of USD weakness, let’s examine its drivers. The starting point is its overvaluation. According to the Bank for International Settlement’s measure, even after the selloff so far this year, the USD real effective exchange is trading around the previous peak level of February 2002.

The second driver is the USD’s reserve currency status. For decades, the USD has been seen as the world’s preeminent reserve currency because of the US’ deep capital markets, strong regulatory infrastructure and predictable policymaking institutions.