PETALING JAYA: The US dollar’s weakening since early January and the rise of emerging market currencies, including the ringgit, is not a sign of drastic de-dollarisation and is possibly temporary in nature.
While economists do see a long-term structural shift away from the greenback such as in international reserves and trade, many believe the current dollar weakness is of US President Donald Trump administration’s own making.
Interestingly, Trump favours a weak dollar as he attempts to bring back manufacturing into the world’s biggest economy.
Economist Geoffrey Williams told StarBiz the volatility in the greenback is driven by “short-term issues” related to the tariffs and the general stance of US economic policy.
“This is normal during periods of policy uncertainty. The dollar weakness will continue until the tariff issues are settled, then there will be a turnaround. This may happen as early as July when the 90-day pause period ends or earlier as tariff deals are announced.”
Williams, however, acknowledged there is a long-term shift in the use of the dollar, with the greenback’s use in international reserves falling from above 70% 25 years ago to less than 60% now. “This is likely to continue, but it is not necessarily due to the current short-term issues,” he said.
The US dollar has been on a downtrend this year, with the Dollar Index falling by 8.6% year-to-date to below the 100-point mark. Any value below 100 is considered a territory of weakness for the US dollar. As at press time yesterday, the Dollar Index was around 99.2.
Meanwhile, the ringgit has appreciated by 4.9% year-to-date to RM4.24 per US dollar. Maybank Investment Bank Research (Maybank IB) expects the ringgit, along with major regional currencies like the Singapore dollar, rupiah and baht to further strengthen this year, as global investors spread their holdings more widely after years of heavy US positioning.
“However, while this may occur, we are not convinced yet that there is sufficient evidence to show a real structural shift out of the US dollar into the region,” it said in a note.
According to Maybank IB’s forecast, the ringgit is ripe to test RM4.10 by the fourth quarter of this year. The research house said Trump’s capricious nature may continue to inject volatility in the markets.
However, unlike past episodes of risk aversion, the US dollar was punished most discernibly as part of the “Sell America” narrative.
“We found signs of US dollar risk premium rising in recent price action by looking at a GARCH model of the Dollar Index volatility and the rise may not be completely done as we are still off historic highs. We suggest to continue selling the US dollar on rallies if the United States continues to push its agenda of tariffs,” it said.
Beyond tariffs, Socio-Economic Research Centre (SERC) executive director Lee Heng Guie believes the United States’ unsustainable debt and budget deficit are also weighing on the dollar.
Additionally, foreign investors have rebalanced their portfolios as they reduced exposure to the US dollar-denominated assets and switched to other currencies.
“It is reckoned that the US dollar has not enjoyed the same hegemony of its 1990s heydays. De-dollarisation and a long-term trend towards diversification of currencies in global financial transactions and trade is a growing trend in the face of shifting global power dynamics.
“Prospects for the US dollar may not be as bright as they once were, as some diversification from the greenback is underway as the world’s economic centre of gravity is indeed shifting eastward towards China, India and other emerging markets,” said Lee.
Meanwhile, Williams pointed out that investors were moving into other currencies including major liquid currencies like the euro, pound and yen.
“The move to use national currencies in bilateral trade is also increasing as is the use of cryptocurrency investments and all of this is market driven which is likely to continue,” he said.
Despite the shift away from the US dollar, it is noteworthy that it has retained its position as a leading reserve currency.
In 2024, the US dollar’s share of global reserves stood at 57.8%, although this was a reduction from a peak of 71% in 2000 and 62.3% in 2010.
SERC’s Lee said since end-2020, central banks’ reserve diversification has not been towards the euro, pound sterling and the Japanese yen, but towards non-traditional reserve currencies such as the Chinese yuan and other small, open and better managed currencies including the Australian dollar.
The euro’s share of global reserves was reduced from a peak of 25.8% in 2010 to 19.8% in 2024, while that of the yen’s share also fell from 6% in 2020 to 5.8% in 2024.
Based on available data, the yuan’s share of global reserves, which was 1.23% in 2017, has increased over the years to remain constant at 2.3% in 2020 to 2024.
In terms of cross-border transactions, the US dollar is also the most used currency in the world. Based on the data from the international payment messaging system SWIFT, the US dollar had a share of 60.1% as of December 2024, followed by the euro (12.8%). The yuan’s share was 2.8%.
Maybank IB also highlighted that the share of US dollar transactions on SWIFT had actually increased in recent months up to April 2025. “This does suggest that the dollar’s dominance is hard to challenge in the near term,” stated the research house.
Regardless, Lee foresees the trend of the dollar weakness to continue on persistent worries about the tariff policy uncertainty and the US growth prospects.
The more discerning concerns are the impact of Trump’s proposed “One Big Beautiful Bill Act” raising the US debt and deficit by trillions of dollars.
Additionally, the Federal Reserve interest rate cuts to combat cyclical weakness could hurt the dollar further. With a weak dollar in place, it would mean a period of strength for the ringgit.
Lee said that a strong ringgit is good for businesses importing intermediate and capital goods, while it could dampen the export-oriented industries’ competitiveness, in particular to the US market.
“A favourable exchange rate is not the only factor influencing a company’s price competitiveness. Non-price factors such as enhanced quality or better labelling of exported products as well as product differentiation and value-addition are also important to sustain real price competitiveness.”
Williams, on the other hand, said the weak dollar will impact Malaysian exporters through continued volatility, which affects pricing into export markets.
“This is normal but the real issue for exporters is the outcome of the tariff negotiations.
“If this goes well, it will be better for exporters, but they may still face the 10% baseline tariffs and will have to change business models due to that,” he said.
