The Bretton Woods conference, held immediately after the end of World War II – a period of physical and emotional devastation for the financial system – began the process of rebuilding Europe’s shattered economies. In doing so, it helped create and visualize much of the monetary foundations of the modern world.
The war took a major toll on much of Europe, Asia, and Russia. The US, on the other hand, was left mostly untouched after the attack on Pearl Harbour. The war effort sparked by that attack left the US with an admirable industrial capacity and put it in the enviable position of being the only creditor nation.
If a new post-war trading and commercial mandate were to be had, it would be accompanied by dominance of the US dollar as the preferred reserve currency, backed by faith in its mighty economic strength, as well as an independent monetary policy-setting authority.
The ‘safe-haven asset’
Even now, since the conflict in the Middle East has begun, the dollar has strengthened. Historically, the dollar plays its traditional role of the ‘safe-haven asset’ whenever armed conflict arrives. While the US and Israel’s strikes have been sold as temporary, there is fear that much like in the early 2000s, markets should worry about a prolonged war.
This is making for energy costs to rise and since oil invoices are still mostly denominated in US dollars, the struggles in shipment traffic in the Strait of Hormuz will lead to higher prices and thus force more dollar-borrowing. According to the Bloomberg Dollar Spot Index, the effects on the overall value of the buck are currently a resurgence to its highest level since 20 January.
As far as the MSCI Emerging-Markets Currency Index, the rough weekend caused the value for emerging market tender to drop from its highest ever recorded. Emerging market currencies as a whole were gaining thus far into 2026 based on concerns over the US economy being more fragile than economists anticipated, while investors and traders looked for higher-yielding alternatives.
War efforts bring along a new economic dynamic and Iran is no small nor easy target. Furthermore, Middle Eastern currencies may run into trouble while the farther away nations are from the hot region, the better their respective currencies may fare against the dollar’s renewed demand.
Tariffs and embattled nations bode poorly for the global economy and could exacerbate the Buck’s recovery going forward.
The tariff revolution
In 2025, these core tenets are now rattled, leaving traders shaken. The norms associated with how the US approaches trade negotiations and how the Federal Reserve can go about its business have been challenged.
A new administration, focused on enacting protectionist policies and weighing matters of national security over free trade, has been reshaping the US’s relationships with its most important trading partners. As costs for consumers keep rising, suppliers are left wondering how long they can keep absorbing the pain.
Tariffs, which have been deployed as tools for diplomatic realignment and have played the role of taxes on businesses and consumers, are resulting in the revamping of trade deals, with various partners revisiting agreed terms.
Tariffs are increasingly being used as replacements of financial sanctions, which are now viewed as antiquated and ineffective.
For example, China, by far the US’s largest source of imports and the world’s second-largest economy, has been in year-long negotiations to avoid an escalating tit-for-tat tariff war with the US. It has not shied away from accusing the world’s largest economy of reckless, unilateral economic aggression, with little concern for retaliation and damage to relations.
Meanwhile, countries with a friendlier relationship with the White House, such as Argentina and Hungary, have been treated far less harshly and avoided being hit by blanket tariffs on specific goods. India, for example, was hit by 25% tariffs as punishment for violating US sanctions against imported Russian oil and gas.
However, this was at the same time as the US reaching out to alternative South Asian nations to work on improving their trade relations, eventually signing reciprocal trade deals with Cambodia and Malaysia, and agreeing on trade frameworks with Thailand and Vietnam. The US is trying its best to get China’s neighbouring nations to reconsider their ties to the world’s second-largest economy, looking to incentivise unexplored jurisdictions, so that trade deals can be signed right away, without taking too long to implement.
These nations also play an important role in the less-skilled labour component of high-end tech, particularly in making semiconductors and other key parts for artificial intelligence (AI) development. In what has sometimes looked like animosity between the US and other trading partners, the reality has played out as a strategy of ‘escalate to de-escalate’”
In October 2025, Chinese and US heads of state met in South Korea and managed to walk out with a truce, minimising reciprocal damage and allowing some concessions on technology and rare metals. Increasing energy needs are driving a new push for semiconductors and sophisticated high-end tech, and will determine how the two superpowers treat one another and other nations going forward.
Mexico’s tightrope
The dollar’s deterioration has been particularly acute against the Mexican peso. The peso has been one of the best-performing currencies in 2026, gaining five to six percent against the dollar.
In recent years, ‘friendshoring’ and ‘nearshoring’ – also influenced by the pandemic – have helped Mexico grow an even closer partnership with the US, especially as the latter looks to shake its manufacturing dependence on China.
Nevertheless, with recent GDP figures suggesting a contraction and a possible recession, the Mexican peso might start feeling some downward pressure.
There is also a bit of worry that the United States-Mexico-Canada Agreement (USMCA) may be revisited with the intent to limit it, which is keeping Mexican peso participants on edge. It is a moment of concern for Banxico, Mexico’s central bank, continuing the worrying global phenomenon of ‘stagflation’, low or negative growth accompanied by stubborn price rises.
It is impressive, nonetheless, how the Mexican peso advancement has remained with carry-trader appeal. Mexico has established itself as a bridge between the Northern hemisphere and the rest of the Pacific Rim.
The result?
A falling currency In the US, rapid policy changes, market concentration in the profitability of stock exchanges based on AI innovation, and labour market struggles, are leaving plenty of uncertainty that is chipping away at the value of the dollar.
The currency, once indisputably the world’s strongest, has been experiencing its worst six-month run in history. More than ever before, vendors overseas are asking to be paid in their local currency or a different foreign tender – anything but the once-Almighty Buck.
While most managers worry about protection from market movements, locking in forward contracts for three months or more has been difficult due to the margin calls that have resulted from the rapid loss in the dollar’s value and the inertia of spot movements.
Due to the recent volatility, companies have been combining their balance-sheet hedging with other strategies like participating in foreign exchange (FX) market flows.
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It’s hard to foresee much of a break for the dollar this year. Recent US economic data revealed struggles in both labour and consumption that will likely be addressed by a mix of fiscal assistance and easing of monetary policy by the Chair of the Federal Reserve, which won’t help on the inflation front.
As last year has shown, risk markets have a tough time ahead, and forecasting of central bank activity will remain blurry. The best approach is to prepare for things to continue to appear counterintuitive and confusing.
