US dollar downcycle 2025: Insights and implications from Ninety One

The US Dollar Downcycle 2025 is fast becoming a focal point for investors worldwide. According to a new whitepaper from Ninety One’s Investment Institute, “The Unstoppable Dollar Meets the Immovable Mr Trump,” several macroeconomic and geopolitical factors are aligning to reverse the US dollar’s 14-year upcycle.

Since 2011, the dollar’s dominance has been a defining feature of the global economy. However, structural forces – from fiscal deficits to shifting global capital flows – suggest that the dollar’s status as the world’s reserve currency may soon enter a new phase. This shift could redefine asset allocation, trade flows and even geopolitical alignments.

Why the US dollar may be nearing a turning point

The full dollar cycle: Rare but significant

Currency cycles like the dollar’s typically last around 18 years and are driven by major macroeconomic shifts. The whitepaper identifies four key levers that often signal the end of a dollar upcycle:

1. Increasing fiscal and current account deficits.
2. Interest rate differentials narrowing between the US and other markets.
3. Global capital reallocating away from the dollar.
4. A shift in geopolitical dynamics or currency policies.

The whitepaper highlights that 2025 may represent such a turning point, with all four factors flashing red.

The Trump Effect

Former President Donald Trump’s second term could serve as a catalyst for the dollar’s inertia breaking down. Trump’s renewed fiscal policies – centred on expansionary spending and tariffs – are expected to:

• Widen US twin deficits.
• Heighten inflation risks.
• Increase volatility in dollar-denominated assets.

“Trump’s policies create fiscal risk and geopolitical unpredictability,” explains Sahil Mahtani, Head of Macro Research at Ninety One. “This perfect storm could mark the end of the dollar’s remarkable run.”

What history tells us about currency turning points

According to Ninety One’s analysis, historical shifts in the dollar’s strength have coincided with events such as the Nixon Shock (1971), the Plaza Accord (1985), and the post-dotcom era (2002). In these cases, currency downcycles began when weakening US fundamentals were met with stronger global competitors.

In the current scenario:

• Europe and Japan are showing renewed fiscal dynamism.
• China is pushing for internationalisation of the renminbi.
• Emerging markets are diversifying their reserves and settling trade in local currencies, weakening the dollar’s structural advantages.

The combination of these factors makes the US Dollar Downcycle 2025 one of the most anticipated global financial events.

Investment implications of a US dollar downcycle

The potential weakening of the US dollar has vast implications for investors:

1. Shift in global allocations

• Global portfolios, currently overweight in US assets (70% of MSCI ACWI index), may rebalance toward emerging markets and commodities.

2. Currency-hedged assets outperforming

• As currency risk rises, FX-hedged assets could become more attractive.

3. Emerging markets and commodities renaissance

• A weaker dollar often benefits emerging markets and commodities. With increased risk appetite globally, these asset classes could play a central role.

4. Geopolitical volatility and risk management

• Investors will need more flexible currency strategies as geopolitical uncertainties create tactical opportunities.

Geopolitical and macro signals for investors

The US dollar’s supremacy has long depended on global trust and institutional stability. However, the Ninety One report underscores how these foundations are now under scrutiny:

• The Federal Reserve faces political pressure on interest rate policies.
• US debt markets are experiencing reduced global appetite due to fiscal risks.
• Regional economies are accelerating efforts to develop non-dollar settlement systems and alternative financial mechanisms.

Should these trends continue, the dollar’s dominance could give way to a more fragmented and multi-currency era.

Opportunities amid the change

Despite the challenges, investors can position themselves to benefit from the US Dollar Downcycle 2025:

• Consider increased exposure to emerging market equities and bonds, which typically thrive in weaker dollar environments.
• Add firm commodities (like gold and oil) to portfolios as they are likely to strengthen against a declining dollar.
• Shift toward currency-hedged global equities and diversify out of US dollar-denominated assets.

Preparing for the next global currency cycle

The findings in Ninety One’s whitepaper “The Unstoppable Dollar Meets the Immovable Mr Trump” suggest that 2025 could mark the end of the US dollar’s long-standing upcycle. Investors must prepare for the possibilities of increased volatility, evolving geopolitical dynamics and significant adjustments in global capital flows.

As Sahil Mahtani concludes, “This won’t be the end of the dollar, but it’s likely the end of dollar inertia. The next cycle has already begun to take shape, and investors should no longer assume that the future will mirror the past.”

For more insights, explore the full Ninety One whitepaper.