By Naima Sultana
The weakening of the US dollar against major global currencies presents an opportunity for Bangladesh to alleviate pressure on its foreign exchange market and potentially boost apparel exports across several destinations.
The US dollar recorded its poorest performance in the first half of 2025 since 1973, as President Donald Trump’s economic policies spurred global investors to offload their dollar holdings, jeopardising the currency’s traditional status as a “safe haven.”
The dollar index, which gauges the greenback’s strength against a basket of six major currencies, including the pound sterling, euro and yen, fell by 10.8 percent in the first six months of the year.
A softer dollar is expected to reduce the cost of imported goods, which could help Bangladesh contain domestic inflation. Additionally, the prospect of further interest rate cuts by the US Federal Reserve would lower borrowing costs for local banks and businesses seeking foreign loans, thereby providing the Bangladesh Bank with some respite and allowing it to delay any further depreciation of the taka in the short term.
A rate cut in the US could also increase the likelihood of higher portfolio investment inflows into Bangladesh, especially as many equities have significantly depreciated over recent years.
In response to the dollar’s sharp drop against the taka over Tk 2 in just five days, falling to Tk 120 per dollar, the Bangladesh Bank intervened by purchasing $500 million from commercial banks. This raises an important question: why is the central bank preventing the taka from strengthening further?
The principal reason lies in the regulator’s aim to avoid excessive volatility. The central bank seeks to stabilise the foreign exchange market, as neither a sharp appreciation nor a steep depreciation is desirable. A significantly stronger taka could disincentivise exporters and remittance earners, leading to losses and reduced inflows.
Over the past three years, the taka has lost more than 43 percent of its value against the dollar, depreciating from Tk 85.80 to Tk 123 largely due to successive Federal Reserve rate hikes, which bolstered the greenback, especially after the Russia-Ukraine war erupted in February 2022.
However, the latest developments offer a glimmer of hope. The dollar has declined by more than 10 percent against global currencies through June, marking its worst first-half performance since 1973, the year President Richard Nixon dismantled the Bretton Woods gold standard. At its lowest, the dollar hit its weakest level since February 2022.
Looking ahead, the outlook for the US dollar remains subdued. The Trump administration has publicly supported a weaker dollar, arguing that an overly strong currency undermines American manufacturing competitiveness.
Countries holding reserves in alternative currencies stand to benefit more significantly when the dollar weakens. However, for Bangladesh, the immediate gains are limited, as approximately 90 percent of its foreign exchange reserves are held in US dollars.
Nevertheless, market insiders foresee advantages. The dollar’s fall could open doors for the private sector to access lower-cost foreign financing. Exporters may also benefit, particularly in light of recent US tariff hikes and the dollar’s depreciation against other currencies, which could drive buyers to seek more affordable apparel from Bangladesh.
Bangladesh could emerge as a preferred sourcing destination alongside Vietnam and other Asian producers, especially since the taka is not expected to appreciate further, while currencies like the yen have already begun strengthening.
Yet, the weakening dollar and escalating trade tensions have stirred fears of a US economic slowdown and rising inflation. US tariffs on imports from China, Canada, and Mexico are likely to drive up prices in the American market.
A reduction in consumer spending, anticipated government job cuts, and falling equity prices may also prompt further rate cuts from the Federal Reserve. Amid these concerns, US investors are retreating from the dollar in favour of traditional safe-haven assets such as the yen and Swiss franc.
Although the US aims to revitalise domestic manufacturing through higher tariffs, this strategy is unlikely to work for the garment industry, which remains labour-intensive despite advancements in automation. Producing low-cost apparel in the US would be economically unfeasible due to high labour costs. For instance, a shirt that costs $40 to import could cost up to $100 to manufacture domestically.
Tariffs may prove more effective in capital-intensive sectors such as automotive manufacturing, semiconductors, artificial intelligence, and robotics. Taiwan, for example, has signalled that its chipmakers plan to invest billions in the US.
On the downside, if the Bangladesh Bank permits the taka to appreciate, a weaker dollar could render Bangladeshi exports more expensive, potentially curbing demand from US buyers already grappling with inflationary pressures.
On the other hand, import costs would fall owing to increased dollar inflows. As such, analysts urge a holistic assessment of the net impact—while export earnings might suffer, savings on import bills could partially or fully offset the losses. Moreover, a weaker dollar would help temper inflation, as fewer takas would be required to purchase dollars, reducing liquidity in the domestic market.
