Amid all the chaos in global financial markets with President Trump’s announcement of US Reciprocal Tariffs on nearly every country, stock markets declined sharply. Investors might be forgiven for overlooking another key development in the markets.
That has been the continued weakening of the US Dollar. Normally, the US Dollar is a “safe haven” asset in times of distress. Indeed, the so-called “greenback” strengthened in the early days of the Covid-19 pandemic as investors rushed into the world’s reserve currency.
However, the latest tariff uncertainty and continuous flip-flopping from President Trump’s administration have severely dented confidence in the US Dollar. As a result of the “Liberation Day” announcements and subsequent trade tensions with China, the US dollar weakened, US Treasury yields spiked, and stock markets fell – all at the same time.
Read Also: Gold, Bitcoin, Volatility: Which Asset Classes Have Benefitted From Trump’s Tariffs?
US Dollar Index (DXY) performance – 2025 year-to-date (%)
Source: MarketWatch
With the US Dollar Index (a measure of the greenback’s relative strength against the currencies of its most significant trading partners), also known as the “DXY Index”, actually down more than 8% so far in 2025, the greenback is having its worst year since 2008.
For investors, the key question is: how does this impact your US stock investments – which are denominated in US Dollar.
Greenback Weakness Versus Singapore Dollar Relative Safety
The most obvious – and immediate – impact is that a weaker US Dollar will reduce the value of your US stock portfolio in local currency (i.e., Singapore Dollars for Singapore residents).
That’s because the US dollar has weakened by 5.5% versus the Singapore Dollar so far in 2025. While that’s not as big a drop as the overall DXY index, it does mean that 1 US Dollar now only fetches around 1.29 Singapore Dollars.
As recently as January of this year, investors would have received 1.37 Singapore Dollars per 1 US Dollar and this highlights the key issue for investors – foreign exchange (FX) risk of holdings US Dollar assets. Despite not making any investment trades, an investor could have lost around 5.5% of their portfolio value to the devaluation of the USD.
Investors who put money into the S&P 500 Index at the beginning of the year, via a US-Dollar ETF, will have seen their losses compounded by the weakening greenback. Take the iShares Core S&P 500 UCITS ETF (LSE: CSPX), an ETF focused on tracking the performance of the S&P 500 Index. While it has fallen -4.2% so far in 2025, if you add in the FX weakness and decline in the USD, your SGD returns would have been closer to -10%.
Dollar Earnings Profile Of Individual Companies
Another factor to consider is the earnings profile of the individual companies that you hold. Because of the weaker US dollar, companies with a lot of domestically-focused revenue could suffer disproportionately if the US dollar remains weak (or even weaken further).
That’s because these companies’ import costs are in USD and these will rise as the dollar weakens. Furthermore, given their US-dollar-revenue focus, these companies will also have to raise prices if they want to maintain both profits and margins at the same level.
In terms of the types of companies that have a lot of US domestic revenue, retailers are a prime example with companies like supermarket operator Kroger Co (NYSE: KR) and home improvement retailer Lowe’s Companies Inc (NYSE: LOW) generating nearly all their revenue from the US market.
Another sector that could be negatively impacted is airlines, with many US travellers having second thoughts about international travel – which would be a big hit to the lucrative transatlantic routes for US airlines.
On the flip side of that, companies that generate a lot of their revenue overseas could benefit. That’s partly why defensive companies – such as Coca-Cola Co (NYSE: KO), which gets a lot of revenue from overseas markets – are predicted to hold up better amid US dollar weakness.
Watch Out For US Earnings In 2025
While the immediate fallout from a weaker US Dollar can be seen in our local currency (or Singapore Dollar) returns, investors should be on the lookout to see how the weakening greenback actually impacts companies’ earnings.
That’s because if they hold individual stocks, inevitably currency fluctuations as large as we’ve seen so far in 2025 will factor into management’s assessment of their business’s short-term prospects.
The full impact of the weaker US Dollar might not be seen until Q2 2025 or Q3 2025 earnings given the greenback has actually fallen around 4% since the start of April. This could either be a significant headwind – or even a potential tailwind – depending on the firms’ earnings profile from a geographic perspective.
Either way, the ongoing tariff disagreement between the US and China is not good for any company in the US and if it drags out further without a resolution in the next few months, there could be further weakness in the US Dollar that investors have to contend with.
Read Also: 3 Ways The US “Reciprocal” Tariffs Tax May Affect Singapore Businesses And The Economy
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