Within this global environment it is unsurprising that the Rand has strengthened appreciably against the Dollar. This out-performance is not due to improving economic fundamentals. For South Africa to attract significant foreign assets, it would still need to improve its growth outlook and economic fundamentals more broadly.
Since the end of 2024 the US Dollar has weakened by a substantial 11.7% against the Euro (midday 26 June 2025) and by more than 9% on a trade-weighted basis. Critically, this weakness represents an important break from the typical safe-haven performance of the Dollar. Historically, an increase in geopolitical tension (Ukraine/Russia war or Israel/Iran conflict) would result in Dollar strength as investors look to increase their holdings of safe-have assets.
Unfortunately, the latest increase in geopolitical tension has also been accompanied by the persistence of very erratic economic policy in the world’s largest economy. While the US has experienced confusing or illogical economic policy in the past, President Trump’s approach to economic policy as well as political events has been especially uncertain that risks undermining economic confidence on a sustained basis, dampening economic growth and exacerbating the ongoing deterioration of the US’s fiscal framework.
Importantly, the recent and pronounced Dollar weakness (especially from an over-valued position) does not equate to de-dollarisation. There is no evidence that the Dollar is losing its status as the reserve currency of the world. In fact, during the first four months of the year, foreign investors (including most of the major central banks) have bought an additional $455 billion of US government debt, taking the total foreign holding of US government debt up to just over $9.0 trillion, which is close to the record high achieved in March 2025. In total, foreign investors own around 33% of US government debt (data source: STANLIB weekly).
Instead, the Dollar weakness appears to reflect significant concerns about the policy management of the US economy, including (most recently) the risk that a new Chairman of the US Federal Reserve (who would presumably take office around the beginning of June 2026) could promote a more stimulatory approach to US monetary policy that aligns much closer to the ambitions of the Trump administration, but risks undermining US long-term inflation expectations.
The current policy approach by the Trump administration would support the view that the Dollar is likely to weaken further, especially given the recent fiscal stimulus packages announced by Germany in March and June. However, a dampening down of President Trump’s tariff policy agenda coupled with an easing of geopolitical tensions might encourage investment flows back into the Dollar from a short-term oversold position.
Within this global environment it is unsurprising that the Rand has strengthened appreciably against the Dollar. Since the end of 2024 the Rand has gained 5.6% against the weaker Dollar, although it has remained mostly unchanged year-to-date on a trade-weighted basis. The recent out-performance of the Rand against the Dollar is not unique amongst a broad range of emerging market currencies. For example, year-to-date at least 10 other emerging market currencies have outperformed the Dollar by more than 5.6% including the Mexican Peso (9.1%), Hungarian Forint (14.6%), and Brazilian Real (11.3%). This out-performance is not necessarily due to improving economic fundamentals. Instead, many emerging markets are offering investors relatively high bond yields, (in both real and nominal terms) which is attractive for some investors, especially if they anticipate further Dollar weakness. For example, the 10-year bond yield in Brazil is up at 13.9% with a real yield of 8.6%, Mexico’s 10-year bond yield is at 9.2% with a real yield of 5.3%, and South Africa’s 10-year bond yield is at 9.9% with a real yield of 7.1%. The Analytics Emerging Market Currency Index, which monitors 22 emerging market currencies, has gained a substantial 7.8% against the US dollar this year.
Overall, the US Dollar is not behaving in-line with its traditional safe-haven status, which is very unsettling, forcing many investors to look for alternative safe-haven assets (for example gold or the Swiss Franc), or encouraging investors to diversify into assets that are traditionally higher risk but offer high real returns. In that regard, it is intriguing to consider that because the US government is willing to allow its fiscal position to deteriorate significantly further (which implies a further deterioration of its desire to maintain sound economic fundamentals and therefore an increased level of risk associated with US assets) thereby opening the door for alternative assets and currencies to gain some traction. That should be encouraging from an emerging market perspective, but for South Africa to attract significant foreign assets it would still need to improve its growth outlook and economic fundamentals more broadly.
Analytics Consulting FX Solutions provides insights on rand performances on a weekly basis to its FX Partners and their clients. If you require any assistance with international transactions, please do not hesitate to contact us at acfx@analytics.co.za.