Why does the US dollar continue to strengthen when the world is witnessing political turmoil, geopolitical conflicts, economic uncertainty and questions about American leadership itself?
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The answer lies in a fundamental principle of global finance: a currency does not rise because its country is free from problems; it rises when global investors believe it offers a better relative combination of safety, liquidity and returns than the alternatives.
For India, this is particularly important because a stronger US dollar can make crude oil, imported goods and overseas expenses more expensive, while also influencing foreign investment flows and inflation.
Five reasons the US dollar can keep rising
During periods of uncertainty, investors and institutions often seek US Treasury securities, dollar deposits and other dollar-denominated assets. Even when the turmoil involves US politics, the dollar can benefit if the alternatives appear riskier.
If US interest rates are expected to remain higher than those in Europe, Japan or other major economies, dollar assets can attract more capital. What matters is not simply today’s rate, but how investors expect interest rates to evolve.
The US Treasury market is enormous, and dollar markets make it relatively easy to trade, raise funds and settle international transactions. In a crisis, investors often prioritise the ability to access cash quickly over political considerations.
Conflicts and trade disruptions can increase demand for dollars used in international trade and commodity payments. Countries and companies may also build dollar liquidity to meet debt repayments or protect themselves against market volatility.
A rising dollar does not necessarily mean the US economy is improving in absolute terms. The euro, yen or emerging-market currencies may be under greater pressure. Exchange rates measure relative value, not a country’s economic health in isolation.
What does this mean for India?
Crude oil and inflation
A weaker rupee raises the rupee cost of dollar-priced imports, potentially increasing fuel, transport and production costs.
Dollar strength can accompany capital moving towards US assets, putting pressure on emerging-market currencies and equities. The effect on Indian markets depends on several other factors too.
Indian exporters earning dollars may benefit when those earnings are converted into rupees, although imported inputs and currency hedging can reduce the benefit.
The bigger question: can this continue indefinitely?
No currency can keep strengthening indefinitely without changing economic conditions. If US growth weakens, interest-rate expectations fall, investors lose confidence in US fiscal or policy stability, or alternative markets become more attractive, the dollar could reverse.
There is also an important distinction: the dollar can rise in the short term even while its long-term dominance gradually declines. The IMF’s September 2026 data showed that the dollar’s share of allocated global foreign-exchange reserves fell to 56.7% in the second quarter, from 57.18% in the first quarter.
My conclusion: The dollar’s current strength is not proof that the US is politically stable. It reflects the combination of demand for liquidity, relative economic performance, interest-rate expectations and weaknesses elsewhere. In a turbulent world, investors may still choose the dollar because they see fewer practical alternatives.
For India, the key question is not simply whether the dollar rises, but whether the rupee’s depreciation becomes persistent enough to affect inflation, capital flows and the RBI’s policy choices.
