07:50 / 27.06.2025

How the Weakening of the US Dollar Affects Uzbekistan

In the summer of 2025, an unexpected trend emerged in global financial markets — a sharp weakening of the US dollar against other major currencies. The dollar index dropped to its lowest level since 2022, with the currency losing over 10% of its value this year. This development is naturally affecting the global economy, particularly emerging markets like Uzbekistan.

Reasons behind the dollar’s decline:
▪️Threat to Federal Reserve independence: US President Donald Trump publicly criticized Fed Chair Jerome Powell and signaled he is considering candidates more inclined to lower interest rates.
▪️Expected interest rate cuts: Markets anticipate that the Fed may lower its key rate as early as July, reducing the dollar's attractiveness.
▪️Loss of "safe haven" status: Amid Middle East tensions, the dollar has failed to maintain its traditional role as a reliable asset.
▪️Strengthening of the euro and pound: The euro has risen above $1.17, and the pound is trading around $1.37 — pushing the dollar index downward.

Implications for Uzbekistan:
1. Expanded export opportunities:
Since much of Uzbekistan’s exports (cotton, gold, agricultural goods) are priced in dollars, the weaker dollar makes these products more affordable on global markets, increasing their competitiveness.

2. Reduced import costs:
As most imports are paid in dollars, the weaker currency lowers the cost of imported goods — such as cars, electronics, and energy equipment — which could help curb domestic inflation.

3. Reduced pressure on the exchange rate:
A prolonged dollar decline could ease pressure on the Uzbek soum. The Central Bank may have more flexibility to cautiously lower interest rates and manage inflation risks.

4. Mixed signals for investors:
While political and financial uncertainties in the US may raise concerns, the situation could also make emerging markets like Uzbekistan more attractive for investment — particularly in sovereign bonds and private sector projects.

The weakening dollar could mark a major shift in the global financial system. While Uzbekistan may benefit in several ways, it's crucial for the government and financial regulators to closely monitor developments and proceed cautiously in areas like foreign reserves, external debt, and monetary policy.