The weakening of the US dollar, now trading at a three-year low against the euro, is raising concerns among global fund managers about the future of the greenback as the world’s currency, and its impact on Kenyan shillings among other global currencies.
Consequently, economists are raising questions about potential implications for developing global economies, including countries like Kenya.
Like many other countries, Kenya has operated within a dollar-dominated financial system.
Additionally, key sectors like fuel and food imports to external debt repayments are highly exposed to dollar fluctuations.
However, analysts warn that recent developments in US policy may undermine the dollar’s long-standing position as the anchor of global finance.
Also Read: Ruto’s Govt Clarifies Trump Imposing Tax on Kenya’s Exports
The Fall of the US Dollar and Impact on the Kenyan Shilling
According to a report by Goldman Sachs, the US dollar is expected to weaken steadily through 2025, while the euro and other currencies may become stronger.
This signals a major shift in global currency dynamics that could affect trade, investment, and borrowing costs worldwide.
Moreover, with US growth slowing and other economies catching up, investors are pulling back from the dollar. As a result, Goldman Sachs believes that its value is expected to fall further.
The American multinational investment bank now believes that the euro will become stronger against the dollar over the next year as follows.
In 3 months: 1 euro = $1.12
In 6 months: 1 euro = $1.15
In 12 months: 1 euro = $1.20
On the other hand, The Financial Times has indicated that these developments have prompted global fund managers to reassess their long-held faith in the dollar.
In response, investors are starting to diversify into other currencies such as the euro and Chinese yuan.
“There is now a very good case for the end of American dollar exceptionalism,” said Bob Michele, chief investment officer of JPMorgan Asset Management, with $3.6tn under management, while speaking to The Financial Times.
“There is certainly a possibility that increased policy uncertainty in the US could lead to shifts in the dollar’s use in the global economy,” added Brad Setser, a fellow at the Council on Foreign Relations.
For Kenya, a weaker dollar might temporarily ease import costs, but greater instability in exchange rates could undermine investor confidence and trigger inflation in the long run.
Also Read: World’s Youngest Dollar Billionaires and How they Got Rich
Trump Imposing Tariffs on Kenya and Other Countries
US President Donald Trump’s tariff policy signed at the White House on Wednesday, April 2, sets a 10% baseline tariff on all imports, with steeper rates for specific countries.
China got a 54% total tariff, including a new 34% hike on top of the existing 20%, the European Union got a 20% tariff imposed, Vietnam got a 46% tariff imposed, while Trump imposed 32% tariffs on Taiwan.
The move sent shockwaves through global markets, with stocks falling sharply after hours.
Moreover, Trump warned foreign leaders, including presidents, prime ministers, and ambassadors, that they must eliminate their own trade barriers if they expect tariff exemptions from the U.S.
“Terminate your own tariffs, drop your barriers, don’t manipulate your currencies,” Trump said.
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