Record expects global fragmentation to increase demand for active currency management.
Trade disputes, geopolitical tension and changing capital flows are making exchange rates harder to predict. This raises the risk of relying on passive hedging or maintaining concentrated exposure to a small number of currencies.
The US dollar remains the world’s main reserve currency, but its long-term position is under greater scrutiny. Central banks are diversifying reserves, supply chains are becoming more regional and concerns around US fiscal policy remain important. These changes could lead to higher currency volatility. That would increase the need for specialist hedging and create a broader opportunity set for active currency strategies.
Large global trade imbalances remain part of the problem. East Asia and Europe continue to run significant surpluses, while the United States carries much of the corresponding deficit. This structure has supported the dollar’s role in global finance, but persistent deficits may weaken confidence if fiscal policy becomes less credible.
US tariffs have increased government revenue, but they have done little to reduce the overall trade deficit. Some trade has simply moved through other Asian economies.
China’s economic influence has also grown. Its larger share of global income and continued trade surplus support a more divided global system, with the United States and China leading competing economic blocs.
Europe may respond by building stronger relationships with countries outside those two blocs. This could create new trade and investment patterns, with direct consequences for currencies and cross-border capital flows.
Countries are also trying to reduce their dependence on strategic imports. Europe and China are investing in renewable energy, while the United States and China are strengthening domestic control over semiconductors, rare earths and other critical technologies.
The dollar could weaken if US fiscal conditions deteriorate, policymakers seek a lower exchange rate or a wider financial shock reduces confidence. It could strengthen if fiscal discipline improves, geopolitical risk increases demand for safe assets or technology investment drives stronger productivity growth.
More capital has moved into equities rather than Treasury securities. This has supported the dollar, but it also makes the currency more exposed to confidence in US corporate earnings and technology companies.
Record plc (LON:REC) develops bespoke, high-quality, sophisticated solutions for institutional investors, a unique offering stemming from Record’s knowledge and expertise gained from its core currency hedging markets.
