Raymond Sia
Prologue
“King Dollar” assumed its reign (again) almost 3 years ago.
This was during the time when the global economy & markets had to contend with US Federal Reserve raising and keeping interest rates elevated.
The elevated interest rate was a simple & straightforward monetary policy tool to manage inflation which started showing its fangs after years of quantitative easing and post Covid-19 effect which disrupted supply chains and this was further compounded by global geo-political tensions.
The US economy appears to be dealing with high interest rates well (so far); with economic indicators from payroll, jobless claims and personal consumption data still reflecting firm and stable readings.
An important economics & monetary policy question to ponder is how long will “King Dollar” strength persist?
Peak & Trough – How high (or low) can it go?
Many global & investment banks are now forecasting the world’s reserve currency will peak as early as mid-2025; before starting the decline, with some investment house expecting up to 10% decline (against G-10 currencies) by end of 2025.
As a Dollar-bull & Dollar-long proponent, I have been taken by pleasant surprise with the longevity of King Dollar’s reign. Since US Elections in November 2024, the Dollar Index (DXY) reached a peak of 6% in mid-January 2025; fueled by expectations that President Trump’s tariffs and tax cuts will fan inflation, and complicate the US Fed’s mission to lower rates in the months ahead.
Since then, the DXY has undergone a roller coaster ride with the index; and at the time of writing this article the DXY was at a fairly flat level; with a little upward bias as compared to during the November elections.
Markets are anticipating lower interest rates in the U.S. by year end; with at least 2 rate cuts each in 2025 and 2026 (based on the March 2025 Fed’s Dot Plot) and this will certainly have a direct impact on the Dollar (at least for the immediate term).
Point to Ponder: What if there is only one (or none) interest rate cut in the US in 2025?
Dominance & De-dollarization – Do we (really) need the Dollar?
Based on Swift March 2025 report, 48.9% of all global payments are in Dollar with Euro being the far distant second most popular global payment currency at 22.2%. The gap is even wider when it relates to Trade Finance with King Dollar swinging its scepter at 81.8% with the Chinese Renminbi next; at only 6.3%.
Have we noticed how quiet the Brazil, Russia, India, China, and South Africa (“BRICS group”) has been the past few months? The confluence of tariff & sanctions threats along with the US President’s own thundering threat to BRICS group that “they will neither create a new BRICS Currency, nor back any other Currency to replace the mighty U.S. Dollar,” and “if they do, they will face 100% Tariffs” has heighten the level of anxiety amongst the BRICS group and also cause more uncertainty in the global currency and trade arena.
Point to Ponder: Is 2025 the year of BRIC Group’s break-up or demise?
Clear & Present (uncertain) Danger – Trade & Tariffs
Tariffs (more often) have negative impact & repercussions on both; the man-on-the-street and the economy (and not forgetting friendships).
Many are losing track on the tariffs being imposed by different countries especially by the US; as the tit-for-tat battle landscape seems to be changing with sudden changes in these retaliatory actions.
The world will have better clarity on 2 April 2025 when the US unveils its “reciprocal tariff plan”, aimed to impose tariffs on countries that currently tax US good, matching their rates.
A prolong war-of-tariffs or trade wars will more often lead to higher inflation. This alongside the heighten levels of uncertainty in geo politics will provide more tailwind for the Dollar in the short run.
On the flip side; any amicable resolutions to possible trade wars will disappoint dollar-bulls.
Many have taken positions late last year based on the view that the trade wars will support the Dollar. However, we have seen US dollar index speculators sharply reducing their net long position to a 2 and half month low according to the latest Commitment of Traders data released by the Commodity Futures Trading Commission dated 18 March 2025.
Point to Ponder: What if the tariffs & trade wars are escalated to another level in 2025; targeting actual source of original content, rather than country of transit?
Epilogue
“King Dollar” reigning days appears numbered. Despite the eventual abdication of its reign, a successor; being the next best alternative currency has yet to be clearly identified and would require a lot of patience by the Markets.
How long must Markets wait to sing a “new song” (in finding the alternative to the Dollar) is another key question besides calculating the remaining days of King Dollar.
You set my foot upon a rock;
You made my footsteps firm;
Many will see, many will see and hear;
I will sing, sing a new song.
“40” – U2 / Psalm 40.
Raymond has spent three decades in the banking industry and has been Chief Executive Officer at Canadia since 2018. Under his leadership, Canadia has strengthened its position as a top Consumer, Corporate and SME Bank. In 2022, he was recognized as Best Bank CEO by The Asian Banker.
