The US dollar has recorded its steepest half-year drop since 1973, plunging 10.7 per cent in the first half of 2025. This dramatic fall reflects growing unease about the country’s fiscal path, political volatility and eroding global economic dominance.
The decline is reminiscent of the post-Bretton Woods era in the early 1970s, when major economies shifted from gold-backed exchange rates to floating regimes, initiating a prolonged weakening of the dollar.
The parallels with the 1970s are striking. Then, the Vietnam War and the abandonment of the gold standard weakened the US dollar’s global standing. Today, the combination of President Donald Trump’s aggressive trade tariffs, burgeoning fiscal deficits and reduced global confidence in US policy have led to similar downward pressure.
According to OCBC’s FX strategist Christopher Wong, policy unpredictability and growing doubts about US exceptionalism have fuelled the dollar’s underperformance, The Business Times reported.
Tariffs, fiscal risk and the dollar’s decline
President Trump’s protectionist economic agenda, particularly his sweeping tariff measures and a fiscal stimulus package that dramatically increases government spending has added significant stress to the dollar. These initiatives, intended to revive domestic manufacturing and assert economic sovereignty, have instead intensified inflationary pressures and raised concerns about the sustainability of US public debt.
The Congressional Budget Office estimates that Trump’s latest legislative package could expand the US debt by $3.3 trillion. The country’s total public debt has already approached $36 trillion triggering a credit downgrade by Moody’s in May 2025.
Foreign investors are retreating with Treasury International Capital (TIC) data showing net outflows from US assets, a reversal of a long-standing trend of global faith in US financial instruments. These developments are weakening traditional support pillars for the US dollar.
Ordinarily, rising Treasury yields would attract capital and support the currency. But in this case, the yield-dollar relationship has broken down. Despite 10-year Treasury yields rising to around 4.6 per cent in May, the dollar has continued its decline, revealing a deep-seated loss of investor confidence.
Asian currencies surge as dollar slips
This pronounced weakness in the dollar is creating favourable conditions for many Asian currencies to strengthen. With the US no longer commanding unquestioned dominance in global finance, markets are shifting capital toward regions with stable macroeconomic fundamentals and clearer policy outlooks.
The Korean won has been one of the standout performers in Emerging Asia this year. It is the second-best performing currency against the dollar on a spot basis so far in 2025. This strength is also attributed to several domestic reforms in South Korea including a pro-equity policy push and a supplementary budget that has buoyed investor sentiment.
The Korean won’s high beta to both the US dollar and Chinese renminbi suggests that continued dollar softness will amplify its gains. Additional factors such as foreign inflows into South Korea’s markets and Taiwanese life insurer hedging strategies may also support further won appreciation.
Taiwanese dollar holds momentum
The Taiwanese dollar has also seen strong appreciation against the dollar though its upward momentum may begin to moderate. Taiwan has accumulated a significant amount of US dollar deposits over recent years — excluding China and major financial centres, it leads the region in this regard.
Now that the US dollar trend has reversed, exporters are expected to increase their conversion of dollar holdings into local currency, putting further downward pressure on the USD/TWD rate, said a report by The Business Times.
However, this driver is likely to play out gradually, as much of the FX conversion depends on corporate behaviour and trade flow timing. That said, the base case for continued Taiwanese dollar strength remains intact.
Southeast Asian currencies benefit from reallocation
Southeast Asian currencies such as the Malaysian ringgit and Indonesian rupiah are also experiencing appreciation due to the dollar’s slide. BNP Paribas strategist Parisha Saimbi has pointed to large foreign currency deposits in these countries, indicating potential for domestic corporates to hedge dollar risk or repatriate funds — both of which support local currency strength.
Additionally, rising portfolio inflows and supportive monetary policy are reinforcing these trends. The Indonesian rupiah, in particular, is attracting interest as a high-yield currency, benefitting from global investors seeking alternatives to volatile US Treasuries. These gains are likely to continue as long as macro fundamentals remain steady and regional risk remains subdued.
Singapore dollar: Limited headroom
While many regional peers are gaining significantly, the Singapore dollar’s room for appreciation appears more constrained. OCBC’s Wong and Frances Cheung have suggested that the SGD’s trade-weighted valuation leaves limited scope for further upside, especially as the yen and won are expected to play catch-up in the second half of 2025, The Business Times report said.
Nonetheless, a mild downward move in the USD/SGD pair is still expected, conditional on easing trade tensions and sustained dollar weakness. Singapore’s currency may play more of a defensive role in the regional FX landscape, maintaining stability rather than leading gains.
Thai baht gains but faces political risk
The Thai baht has also appreciated following the Israel-Iran ceasefire, but its future remains uncertain due to internal political instability. MUFG Bank analyst Lloyd Chan warns that protests could escalate, as seen during Thailand’s 2013–2014 crisis, which culminated in a coup. Such turmoil would likely hurt tourism, stall fiscal policymaking, and dampen economic growth — all negative for the baht’s outlook.
Thus, while the dollar’s weakness offers support, domestic issues could limit the baht’s ability to fully capitalise on the broader trend.
Sustained tailwinds for Asian FX
According to The New York Times, analysts generally agree that the momentum for Asian currencies is likely to continue into the second half of 2025. The structural weaknesses in the US dollar including fiscal irresponsibility, inflationary tariff policies and a weakening role in the global financial order suggest a prolonged period of softness.
Just as the 1973 dollar slump marked a turning point in global currency dynamics, the current environment signals another realignment. Countries with strong external positions, stable governance and credible policy frameworks are set to benefit most. Asian currencies, particularly those in East and Southeast Asia, are emerging as key beneficiaries.
As confidence in the US dollar erodes and global capital looks for alternatives, the region is well-positioned to absorb inflows and consolidate FX gains. While volatility may persist due to geopolitical shocks or policy surprises, the fundamental drivers suggest a favourable backdrop for continued Asian currency appreciation through the rest of the year.
