Weakening dollar reaches record low, reshaping international trade credit risk

Since the end of World War II, the United States’ dollar (USD) has been recognized as the world’s primary reserve currency and the most widely used medium of exchange in global transactions. Despite its long-standing dominance, the dollar remains susceptible to periods of devaluation. 

Why it matters: Currency fluctuations increase risk in international trade credit. Credit professionals who understand both the advantages and challenges of a changing dollar are better equipped to reduce exposure and secure payment in cross-border transactions. 

Over the past few years, the dollar’s prominence has been challenged by the BRICS bloc, a group representing the countries of Brazil, Russia, India, China and South Africa. This organization is developing alternative payment systems and promoting trade in local currencies to reduce reliance on the U.S. dollar. However, their efforts have been hindered due to structural challenges, including a lack of robust central banks and monetary policies. 

In 2025, the U.S. Dollar Index (USDX) fell to about 10%, reaching a record-low in over 50 years. Despite rate cuts by the European Central Bank (ECB) and the Bank of England (BoE), the Fed has kept rates unchanged. This inaction is attributable to lower U.S. growth, widening deficits, policy uncertainty and shifting global capital flows, rather than interest-rate differentials, are behind the dollar’s weakening, according to J.P. Morgan. 

When the dollar falls: Impacts US suppliers can’t ignore 

One of the most challenging aspects of devaluation is that it may increase the purchase price beyond the reach of the buyer, which may cause slower payments, acceptance refusal of deliveries or defaults. “If your customer’s local currency weakens against the USD, their debt burden increases if they owe you in dollars,” said Ty Knox, ICCE, director of credit and risk at EFCO Corp (Des Moines, IA). Additionally, credit professionals may encounter higher import costs, inflationary pressures and risks to financial stability. 

When a domestic currency strengthens relative to a foreign currency, profits or returns generated abroad will shrink once converted back to the domestic currency. Because exchange rates can be somewhat volatile, foreign exchange (FX) hedging against this type of risk can be challenging. 

“When market volatility is high, hedging can become very expensive,” said Fred Dons, global head of trade finance at Stavian Singapore, during an FCIB Global Expert Briefing, The Good and Bad of a Cheaper Dollar. “In that situation, it’s sometimes better to wait a few weeks, or even longer, until the market stabilizes and hedging becomes attractive again.” 

Hedging FX risk is a risk management strategy used by businesses and investors to protect themselves against potential financial losses caused by fluctuations in currency exchange rates. It provides certainty about future cash flows and helps maintain predictable profit margins.

Credit professionals can use several common tools to hedge FX risk, including options, forwards, futures and swaps, which can be traded either over the counter (OTC) or on exchanges. 

On a positive note, a weakened dollar means that the U.S. economy becomes more competitive globally. As U.S. goods become cheaper for foreign buyers, American suppliers experience an increase in export sales and profits, especially those in the agriculture, commodities and manufacturing sectors.  

Another advantage to a depreciated dollar is that it stimulates domestic lending. Lower interest rates encourage more borrowing and lending for consumers and businesses, increasing transaction volume for credit professionals. It also drives international investment as international assets become more valuable when converted back to dollars, attracting U.S. capital and creating opportunities in global credit markets. A cheaper dollar also supports U.S. multinational corporations, allowing them to earn more in dollar terms from foreign sales, boosting their bottom line and investor confidence, eventually leading to dividends or acquisitions.  

The bottom line: Changes in currency value are an inevitable part of global trade, and the impact depends largely on which currency’s value is fluctuating and in what direction. Staying prepared is key to navigating foreign exchange risks like devaluation.