2025 began with US President Trump launching a wave of reciprocal import tariffs on all its trading partners, sparking fears of an economic slowdown, and launching a global race to cut trade deals with the US. Just before the August 1 deadline, Trump announced a 25% tariff on Indian imports and warned of additional penalties over India’s ongoing oil and arms trade with Russia. The move has raised concerns about the future of India–US trade relations.
The US also imposed 50% tariffs on most Brazilian goods, 19% on the Philippines, and 15% on South Korea. A flat 50% tariff was also introduced on all semi-finished copper products and copper-intensive derivatives, disrupting global supply chains in manufacturing and electronics.
The US economy has long had a reputation for policy stability. This over the decades, has made US treasuries and the dollar the chosen “safe haven” for countries globally. But these tariffs, along with Trump’s threats on Truth Social, a new deficit-busting spending bill and the Federal Reserve's slowing rate cuts, have added fresh uncertainty and weakened the dollar.
The Fed paused rate cuts in late 2024, but investors now expect two more cuts in the second half of 2025. Other central banks, including Brazil, Mexico and Japan, are holding rates steady. This has given the ‘carry trade’ strategy a boost, where investors borrow in low-interest currencies (like the USD) and invest in higher-yielding ones, making money off the higher interest.
Growing concern about the country’s long-term finances is adding pressure to the US dollar. The government’s rising debt, ongoing budget deficits, and repeated political standoffs over the debt ceiling have spooked investors. In May, Moody’s downgraded the US credit outlook from ‘stable’ to ‘negative’, warning that “persistent, large fiscal deficits will drive the government’s debt and interest burden higher” without stronger fiscal policies.
Speaking on the deteriorating US dollar, RBC Global Asset Management’s Managing Director & Senior Portfolio Manager, Daniel Mitchell, said, “Trump's second term, we think, will come to be known as marking the beginning of a multi-year dollar decline and a momentous shift for foreign-exchange markets that will impact the broader investment landscape.”
In this week’s Chart of the Week, we explore the dollar’s performance in 2025. The Russian ruble, euro, and Singapore dollar have gained ground. India stands out as the only major economy whose currency has weakened against the dollar. The rupee's fall is driven by foreign investor outflows, volatile crude prices, and US tariffs, all adding pressure on the Indian economy.
Foreign outflows, oil swings and policy worries weigh on the rupee
The Indian rupee has weakened against the US dollar in 2025, hitting an all-time low of Rs 87.7 per dollar on July 31. The decline deepened after US President Trump announced 25% import tariffs on Indian goods, excluding pharmaceuticals and electronics, effective August 1.
The US is India’s largest export destination, generating $86 billion in FY25. These tariffs are expected to reduce Indian exports, widen the overall trade deficit, and lower demand for the rupee among US importers.
Although global crude oil prices have stayed low, occasional spikes—driven by tensions in the Middle East—have raised India’s import costs and increased the demand for US dollars, adding further pressure on the rupee.
Another factor weighing on the rupee is persistent selling by foreign investors. In 2025, they have remained net sellers due to a mix of weak stock performance and uncertainty over India–US trade negotiations. Add to that expectations of interest rate cuts from the RBI, and the rupee appears less attractive to global investors.
The RBI has cut interest rates by 100 bps this year to support growth and may ease further. In contrast, the US Federal Reserve has held rates steady. While India’s rates are still higher than the US, the narrowing interest rate gap reduces the appeal of rupee-denominated assets, making dollar assets more attractive. Despite RBI’s earlier interventions in the forex market to support the rupee, these efforts have not been enough to stem its decline.
Carry trade drives Brazilian real and Mexican peso’s appreciation against the US dollar
The Brazilian real and Mexican peso have surged 13% and 10.9% against the US dollar in 2025, fueled by the popular ‘carry trade’ strategy.
To combat rising inflation, Brazil hiked interest rates from 11.3% in November 2024 to 15% by June 2025—far above the US rate of 4.5%. This wide interest rate gap attracted global investors seeking higher returns.
The Bank of Mexico (Banxico) has also kept rates relatively high, cutting gradually to 8% in June 2025 from 11.3% in 2023. Despite the drop, the rate remains attractive compared to the US.
Additionally, Mexico is benefiting from the nearshoring trend, as companies shift supply chains closer to the US, driving foreign investment into its manufacturing sector and boosting exports.
Eurozone’s euro & UK’s pound get a boost from foreign investments
The Eurozone’s euro and the United Kingdom’s (UK’s) British pound improved by 10.6% and 5.9%, respectively against the US dollar in 2025. The Eurozone and the UK have seen strong growth in foreign investments during the year. The Eurozone won investments in the green initiatives and AI infrastructure sectors, while the UK attracted investments in the real estate, fintech, and green energy sectors.
The Eurozone’s European Central Bank (ECB) cut its policy rate to 2.2%, but indicated that there will be no further rate cuts. Meanwhile, the UK’s Bank of England (BoE) kept the policy rate unchanged at 4.3% in its meeting in June, citing persistent inflation in the services sector.
The UK’s GDP growth in the first quarter of 2025 was stronger than expected, outperforming other G7 economies and reinforcing confidence in its ability to withstand global pressures, further driving the momentum of the British pound.
Yen recovers, yuan holds firm as Asian currencies strengthen
Japan’s yen is making a comeback in 2025 after hitting record lows last year. In January, the Bank of Japan raised its interest rate from 0.25% to 0.5%, its biggest hike since 2007, ending years of ultra-low rates. This move has encouraged global investors to return to Japanese bond markets. At the same time, large domestic investors, such as insurers and pension funds, are bringing money back home to invest locally.
The Chinese yuan has remained stable in 2025 despite ongoing concerns about economic growth. While foreign investors have largely stayed away, the Chinese government has rolled out new stimulus measures to revive demand. State-owned banks have stepped in to support the yuan when needed. This combination of targeted support and early signs of recovery has helped keep the currency steady.
The Singapore dollar has risen 5.5% this year. With low inflation and no major policy shifts, investors continue to see it as a safe and dependable currency.
The Australian dollar is also holding up well in 2025, backed by strong global demand for commodities, especially iron ore. China’s consistent need for Australian iron ore has been a key driver. The Reserve Bank of Australia has kept interest rates unchanged this year, which has further supported the currency.
The Russian ruble surges against the US dollar, backed by a high policy rate
The Russian ruble (RUB) has endured extreme volatility against the US dollar since Russia's 2022 invasion of Ukraine. It initially plunged to RUB 134 per dollar in February 2022 due to sweeping Western sanctions.
Aggressive countermeasures by the Russian Central Bank, including strict capital controls and demands for ruble payments for natural gas, coupled with high energy prices, led to a remarkable recovery to RUB 54.2 by June 2022.
From that peak, the ruble depreciated steadily, hitting RUB 110.4 per dollar in January 2025, influenced by declining export revenues, rising imports, and new US sanctions. Yet, 2025 has brought a rebound, with the ruble strengthening to RUB 77.2 per dollar by May. The general weakening of the US dollar, combined with the Russian Central Bank's high 18% policy rate, has made the ruble a more attractive currency to hold.
