The US dollar is showing signs of structural softness during 2024, 2025 & 2026 after a prolonged period of dominance. As the world’s primary reserve and trade currency adjusts to new economic realities, questions are rising across global markets:
- Why is the US dollar weakening?
- Can the euro replace the dollar?
- Who benefits from a weaker dollar?
This report breaks down the global currency shift and its direct implications for Bangladesh’s RMG sector.
Why Is the US Dollar Weakening in 2026?
Several macroeconomic and geopolitical factors are contributing to dollar softness:
1. Federal Reserve Rate Cut Expectations
Markets expect policy easing from the Federal Reserve after aggressive tightening in 2022–2023. Lower interest rates reduce foreign investor demand for dollar-denominated assets.
2. Cooling US Inflation
Inflation has moderated compared to post-pandemic highs, reducing the urgency of maintaining a strong-dollar stance.
3. Expanding US Fiscal Deficit
Rising government debt and budget gaps have raised long-term sustainability concerns.
4. Emerging Market Currency Stabilization
Asian and Latin American currencies have regained stability, reducing excessive reliance on USD.
5. Geopolitical Currency Diversification
Countries are exploring alternative settlement systems outside traditional dollar channels.
Despite this weakness, the US dollar remains deeply embedded in global finance.
Why the US Dollar Still Dominates Global Trade
The dollar continues to lead because:
- Most global commodities — including oil and cotton — are priced in USD.
- Central banks hold the majority of foreign reserves in dollars.
- International loans are largely USD-denominated.
- During crises, investors still treat the dollar as a safe-haven asset.
No other currency currently matches the depth of US Treasury markets.
The Euro: The Strongest Alternative to the US Dollar
The euro is the only large-scale competitor to the dollar in global finance.
Managed by the European Central Bank, the euro represents 20 European economies and remains the second-largest reserve currency.
How the Euro Is Benefiting from Dollar Weakness
When the dollar weakens:
- The euro often appreciates against the USD.
- ECB policy stability strengthens investor confidence.
- A stronger euro reduces imported inflation in Europe.
Currently, around 20% of global reserves are held in euros—far behind the dollar but significantly ahead of other currencies.
Does the US Still Support a Strong Dollar?
Traditionally, the US followed a “strong dollar policy.” However, political views differ.
During the presidency of Donald Trump:
- A strong dollar was criticized for hurting US exports.
- Trade competitiveness was prioritized.
- Manufacturing revival was emphasized.
A weaker dollar can boost US exports but may increase import inflation.
Winners and Losers from a Weaker Dollar
Winners
- US exporters
- Emerging markets with dollar debt
- Commodity producers
Losers
- US consumers (higher import prices)
- Dollar reserve-heavy economies
- Foreign exporters to the US
Has This Happened Before?
Yes. Dollar cycles are common:
- The 1985 Plaza Accord weakened the dollar. (DXY level ~ 100-120)
- 2002–2008 saw the dollar decline amid deficits. (DXY level ~ 71-120)
- Post-COVID volatility caused sharp swings. (DXY level ~ 90-114)
Currency dominance evolves — it does not collapse overnight.
What This Means for Bangladesh’s Economy & RMG Sector
Bangladesh’s garment industry depends heavily on both US and EU markets.
Opportunities
- Improved competitiveness in US market if pricing adjusts.
- Reduced pressure on dollar-denominated debt.
- Incentive to diversify export settlements.
Risks
- Volatility in imported raw materials like cotton.
- Exchange rate uncertainty.
- Possible remittance value fluctuations.
Strategic Recommendations for Bangladesh
To manage currency shifts effectively:
- Strengthen reserve strategy via the Bangladesh Bank
- Expand exports to the EU and emerging markets
- Encourage currency hedging practices for exporters
- Increase value-added apparel production
- Explore regional local-currency trade frameworks
For Bangladesh’s RMG sector, currency risk management must become as important as cost efficiency.
Can the Dollar Be Dislodged?
Short answer: Not soon!
While BRICS discussions and yuan internationalization continue, no currency yet offers:
- The liquidity of the US Treasury markets
- The institutional trust of the US financial systems
- The global contract base of USD
The future may be multipolar but still dollar-led.
Final Outlook: What Apparel Exporters Should Watch in 2026
A weaker US dollar is not a crisis — it is a transition phase in global currency leadership.
For apparel exporters, this means:
- Closely tracking USD/EUR movements
- Monitoring Federal Reserve and ECB decisions
- Adapting pricing strategies by market
- Using financial hedging tools
The global apparel supply chain is entering a more currency-sensitive era. Bangladesh’s competitiveness will depend not only on production efficiency, but also on financial sophistication.
(Apparel Times BD News Desk)
