The US dollar has long been the bedrock of the global financial system, serving as the dominant reserve currency and a safe haven in times of uncertainty. However, recent declines in its value against major currencies are prompting investors, policymakers, and businesses worldwide to reassess its impact on economies and markets.
Everyday Impact on Travelers and Consumers
For travelers like Kenny Lim, a Singaporean visiting Los Angeles, the weaker US dollar has made trips to the US more affordable despite rising prices. Lim noted that the relative strength of the Singapore dollar made dining and shopping less costly than during his previous stay three years ago. Similarly, another Singaporean, Francisco, found New York City less expensive, allowing him to spend more freely. The favorable exchange rate also meant that everyday expenses, such as car rentals and petrol, were more manageable compared to Singapore.
Mixed Effects for Businesses
While consumers may benefit, the impact on businesses is varied. Importers in Singapore, for example, find it cheaper to buy goods and services priced in US dollars, improving their profit margins. However, companies like robotics startup Augmentus face challenges because much of their funding and revenue is denominated in US dollars. With the greenback’s value dropping about 5–6% against the Singapore dollar over the past year, Augmentus effectively receives less when converting US-dollar earnings to Singapore dollars, squeezing their budgets and complicating financial planning.
Why Is the Dollar Weakening?
Several factors are contributing to the dollar’s slide. The US is experiencing slower economic growth compared to other advanced economies, and its fiscal position is under strain. The federal budget deficit reached US$316 billion in May, and the current account deficit was US$303.9 billion in late 2024. The Congressional Budget Office projects a fiscal deficit of US$1.9 trillion for 2025, about 6.2% of GDP. These persistent deficits, combined with unpredictable US trade policies and new tariffs introduced by President Trump, have rattled investor confidence.
Analysts also point to expectations that the US Federal Reserve will cut interest rates later in the year, further weakening the dollar’s appeal. Meanwhile, alternative safe havens, such as gold, are attracting more investors, and the euro is being positioned by the European Central Bank to play a larger global role.
The Dollar’s Global Role and Its Origins
The US dollar’s dominance stems from historical events. After World War I, the US became the primary lender to other nations, and by the end of World War II, it held most of the world’s gold reserves. The 1944 Bretton Woods agreement pegged major currencies to the dollar, which was backed by gold. Even after the US left the gold standard in the 1970s, the dollar remained the world’s key reserve currency, accounting for nearly 60% of global foreign exchange reserves and being involved in almost 87% of foreign exchange transactions. Most of the world’s oil and commodities are also traded in dollars, reinforcing its status.
Implications for Singapore and Asia
For Singapore, the dollar’s weakness has both positive and negative effects. The Singapore dollar has strengthened, moderating imported inflation but making exports less competitive. Export sectors like electronics and pharmaceuticals are under pressure to reprice or shift production. Companies with US dollar revenues but expenses in stronger currencies may face financial losses as their dollar holdings lose value.
Singapore’s substantial reserves—S$498 billion in official foreign reserves, S$389 billion in Temasek’s portfolio, and over US$100 billion managed by GIC—are somewhat insulated by diversified, long-term investment strategies. While there may be short-term translation losses, a weaker dollar can also make US assets more attractive for future investments.
Global Repercussions and the Future of the Dollar
A weaker US dollar typically benefits Asian and emerging markets, as investors seek higher returns outside the US. However, ongoing US-China trade tensions and rising protectionism may offset some of these gains. Analysts note that while the dollar’s decline raises questions about US economic policies, it does not pose an immediate threat to Singapore’s holdings or the global financial system. The dollar remains deeply embedded in international trade and finance, and no credible alternative is currently on the horizon.
Conclusion
The weakening US dollar is reshaping the global economic landscape in complex ways. While consumers and some businesses benefit from favorable exchange rates, others face new challenges. The dollar’s dominant role is being questioned, but its entrenched position means that any shift will be gradual rather than sudden. As global markets adapt, the world will be watching closely to see how the greenback’s story continues to unfold.