Commodity Watch: Dollar Jitters

<div class="grid grid--33-66-col"><div class="col"><img loading="lazy" src="/getContentAsset/061c994a-a452-418f-bfa0-f2cf3cf5c577/cb87803a-320c-480f-ab75-7b9029eaaf79/Ahmad-Al-Sati-new.png?language=en" alt="Ahmad Al Sati - insights" title="Ahmad Al Sati - insights" style="width: 180px" class="fr-fic fr-dii"></div><span style="font-size: 12px"><div class="col"><strong>AHMAD AL-SATI<br></strong>PORTFOLIO MANAGER<br><br><p>Ahmad is the President and Portfolio Manager for Gemcorp Capital Advisors LLC, based in New York.&nbsp;<br><br>Ahmad has spent most of his career in the global credit markets. Prior to Gemcorp, Ahmad was President of Pandion Mine Finance and RiverMet Resource Capital, LP - a fund focused on investing in precious metals, where he was responsible for managing the investments and the day-to-day operations of the registered investment adviser.&nbsp;</p></div></span></div><hr><p>At the heart of the global monetary and financial system sits the foreign exchange market (FX market), a highly liquid market which processes $9.8 trillion worth of transactions every single day. The FX market facilitates trade and the movement of money globally and it has grown fivefold since the 1990s. Central to this market are a handful of currencies anchored to the US dollar (USD). The USD has become increasingly dominant since the end of Bretton Woods as it supplanted gold. Currently, over 60% of the world’s economies anchor their currencies to the USD in one form or another and 89% of all global transactions are conducted in USD.</p><p>Yet, the FX market seems increasingly susceptible to policy uncertainty and macroeconomic shifts. Last week, the International Monetary Fund (IMF) warned that shifts in policy that elevate volatility and uncertainty are likely to adversely impact the FX market. Disruptions in the FX market could then bleed into other assets such as equities and bonds with widening currency bid-asks, higher FX volatility, more illiquidity and increased funding and hedging costs. These shifts can have negative repercussions on global yields and risk premia as countries and corporates must manage their currency exposures.</p><p>Historically, increased uncertainty was good for the USD. Since 2002 at least, any heightened volatility or increases in perceived or real risk has meant USD appreciation. In 2025, that long established pattern broke. In April, for example, demand for USD in the spot market was less than it was during previous cycles of higher Volatility Index (VIX) values. Instead, the USD depreciated by 6.5% against the Euro and on 10th October 2025, the USD Index (DXY) was lower on news of further trade escalations. In contrast, when tariffs were imposed in 2018 and 2019, the USD rallied by 10% and 5%, respectively.</p><p>A USD trending lower may make US companies less attractive to non-US investors as their returns in home currencies are lower (consider a non-US country with a depreciating currency and its impact on returns in USD). Less investment by foreign investors effectively means less demand for USD, potentially creating a self-enforcing negative cycle for the USD and a virtuous cycle for other currencies. In addition, if the USD is no longer an automatic “buy” at times of stress, it will become less attractive and further lower demand. Lower USD relative to other currencies means higher inflation as import prices increase, elevated yields for corporates and the US government, as well as lower demand for US assets by non-US investors (as they worry about the exchange differential). These are all damaging for domestic US assets and US markets.</p><p>Instead, inflation protection strategies, hard assets (that don’t melt down on a whim), and non-US assets may become increasingly more attractive for global investors looking to mitigate the consequences of this paradigm shift.</p><p><br></p>