Fears of the Dollar’s Decline Are Overdone, BOE’s Bailey Says

The U.S. dollar’s recent slide to multi-year lows has sparked speculation about its waning influence as the global reserve currency. Yet Andrew Bailey, Governor of the Bank of England, insists these fears are overblown. In a series of high-profile remarks in 2025, Bailey framed the dollar’s volatility as a temporary phenomenon, underscoring its structural resilience amid geopolitical and economic turbulence. For investors, his analysis offers a critical lens to navigate currency markets and assess risks in a fractured global economy.

The Dollar’s Current Weakness: Causes and Consequences
Bailey attributes the dollar’s recent slump to three key factors: the Federal Reserve’s aggressive rate cuts—totaling 1.5 percentage points since mid-2025—the escalation of global trade tensions, and a loss of confidence in U.S. fiscal stability. By September 2025, the U.S. Dollar Index had fallen to its lowest level in 15 years, while the British pound surged to 1.50 USD/GBP, its strongest position in decades. This depreciation has ripple effects: rising import costs for the UK have pressured domestic inflation, complicating the Bank of England’s efforts to stabilize prices. Meanwhile, emerging economies with dollar-denominated debt face heightened risks of default, a concern Bailey has emphasized in calls for coordinated central bank action.

But Bailey cautions against conflating short-term volatility with long-term decline. “The dollar’s role as a global reserve currency is deeply entrenched,” he stated at the International Monetary Conference, highlighting its function as collateral in $23 trillion of international bond markets and its dominance in oil and commodity pricing. The dollar’s utility as a “safe haven” during crises—such as during the 2022-2023 geopolitical flare-ups—remains unmatched, even as geopolitical tensions persist.

Why the Dollar’s Reserve Status Remains Unshaken
Bailey’s most compelling argument centers on the dollar’s institutional supremacy. U.S. Treasury bonds, which form the backbone of global pension funds and central bank reserves, retain unparalleled liquidity and trust. As of 2025, the dollar still accounts for 59% of global foreign exchange reserves—a share that has held steady despite periodic dips. Even amid Trump-era tariffs and erratic U.S. policies, no credible alternative has emerged. The euro, hamstrung by intra-EU fiscal disputes, and the yuan, constrained by capital controls, remain second-tier currencies. “A structural shift in reserve dominance requires not just economic shifts but also geopolitical stability,” Bailey noted, pointing to the dollar’s embeddedness in financial systems worldwide.

Investors, however, must not dismiss near-term risks. The dollar’s 16-month low in early 2025—driven by Fed dovishness and fears of a U.S. recession—highlighted its vulnerability to policy missteps. Yet Bailey’s stance suggests that such fluctuations are cyclical, not existential. “The dollar’s role is a product of history, not just economics,” he remarked, emphasizing that its “network effects”—from corporate invoicing to central bank hedging—cannot be easily replicated.

Implications for Global Investors
Bailey’s analysis offers two key takeaways for portfolios. First, while the dollar’s short-term weakness may favor commodities or non-dollar assets, long-term allocations should still anchor in dollar-denominated securities for stability. Second, emerging markets face a precarious balancing act: weaker dollars reduce debt burdens but amplify inflation, requiring selective exposure to countries with robust fiscal frameworks.

The data aligns with this cautious optimism. Despite the dollar’s recent slump, flows into U.S. Treasuries remain strong, with yields holding above 3.5% in late 2025—a sign of enduring investor confidence. Meanwhile, the pound’s surge has cooled UK inflationary pressures, buying the Bank of England some policy flexibility. For now, Bailey’s message is clear: the dollar’s reign is far from over, but investors must stay nimble amid its turbulent cycles.

Conclusion: Structural Strength Amid Volatility
Andrew Bailey’s reassurance that the dollar’s decline is overdone is backed by hard data. The currency’s 15-year low in 2025 reflects cyclical factors—Fed policy, trade wars—not a structural shift. With $23 trillion in Treasuries underpinning global markets and no viable alternative on the horizon, the dollar’s reserve status remains secure. For investors, this means avoiding panic-driven shifts away from the dollar, while monitoring near-term volatility through tools like the DXY index. As Bailey put it, “The dollar’s story is not about endings—it’s about the enduring power of institutions.” In a fractured world, that institutional resilience may be the safest bet of all.