By Dhara Ranasinghe and Amanda Cooper
LONDON (Reuters) -The dollar has sunk to its lowest in three years as rapidly changing U.S. trade policy unsettles markets and expectations build for Federal Reserve rate cuts, fuelling outflows from the world’s biggest economy.
With the dollar down almost 10% against a basket of major currencies this year, other countries around the globe are grappling with unanticipated FX moves that are having a knock-on impact on economic growth and inflation.
“There’s clearly solid dollar selling,” said Kit Juckes, chief FX strategist at Societe Generale.
Here’s a look at some of the biggest movers:
1/ CROWN JEWELS
Scandinavia’s currencies are the standout performers against the dollar so far in 2025. The Swedish crown is up 14%, its best performance at this point in the year against the U.S. currency in at least 50 years. Norway’s crown is up nearly 12%, its best run since 2008.
Highlighting just how much of this strength stems from dollar weakness, Sweden’s crown is up only 4% against the euro and Norway’s just 1.8%.
Sweden is expected to cut rates this month as inflation and its economy slow, yet its currency shows no signs of weakening. In Norway, lower oil prices often temper the crown, but that dynamic has also been upended by its relationship with the dollar.
2/ SAFE-HAVEN WOES
The euro, Swiss franc
But this comes at a price.
Swiss inflation turned negative in May, marking the first decline in consumer prices for more than four years. The surge in the franc reduces the price of imported goods, and piles pressure on the central bank to cut rates back below 0%.
European Central Bank rate setters will also have a wary eye on the single currency, which at around $1.1572 is at its highest since 2021.
“In my heart-of-hearts we are going to get to $1.20 but we shouldn’t get there too fast because it’s deflationary,” said SocGen’s Juckes.
Even after the recent surge, the yen remains down almost 30% from end-2020 levels, leaving Japan to try to balance the negatives of a stronger currency with the need to demonstrate in trade talks with Washington that it is not seeking an unfair advantage from its longer-term weakness.
3/ FACTORY ASIA
For years, Asian investors parked trillions of dollars in U.S. assets such as Treasuries. U.S. President Donald Trump’s April 2 “Liberation Day” fired the starting gun for that capital to start flowing back to the world’s manufacturing powerhouses, boosting their currencies.
Taiwan’s dollar surged 10% over two days in May and is up nearly 12% this year, while the Korean won has gained around 10%.
Singapore’s dollar, Malaysia’s ringgit and Thailand’s baht are all up 6% too, but China’s yuan – arguably the most exposed to tariffs – has only appreciated by about 2% offshore, hemmed in by the central bank’s guardrails around its onshore counterpart.
China wasn’t labelled a manipulator in the U.S. Treasury’s latest currency report, but the lag in the yuan will not have gone unnoticed in Washington.
4/ OUTLIER
Argentina’s peso is an outlier, down around 15% against the dollar and one of this year’s weakest performers.
The reasons are domestic with the introduction of a new exchange rate regime in April allowing the peso to float freely within a gradually expanding band that started between 1,000-1,400 pesos per dollar.
Still, the chaotic crash feared by some has been avoided and a recent $20 billion loan agreement with the IMF is positive.
In contrast, Mexico’s peso, which was under particular pressure at the start of the year from U.S. trade policy, has bounced back to near its strongest levels since August. While it could gain further if tariff spats are resolved, it is also sensitive to the U.S. economic outlook.
5/ STERLING
Softer data has raised the prospect of Bank of England rate cuts and capped sterling’s recent rally to more than three-year highs against the dollar.
The pound is up almost 9% this year and analysts say foreign buyers may be rushing to snap up UK Plc before any further dollar weakness makes future transactions more expensive.
More than $10 billion in bids for British companies were announced on Monday, this year’s busiest day, according to Dealogic data.
Analysts do, however, expect sterling to underperform other major currencies bar the dollar, given fiscal worries and weakening growth.
“Sterling is less appealing than others (currencies) and the macro risks are elevated,” said Lloyds FX strategist Nick Kennedy.
(Reporting by Dhara Ranasinghe and Amanda Cooper, Additional reporting by Karin Strohecker, Editing by Kirsten Donovan)
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