Swirling Trade Winds
- Redmond Asset Management, LLC
- Jul 23
- 4 min read
The first half of 2025 saw the biggest decline in over 50 years of the U.S. dollar (USD) compared to a basket of global currencies.1 So, we thought we would share our general perspectives about foreign exchange in a complex (vs. simple or complicated) world that continually adapts.
Our first takeaway is not the main takeaway. The first takeaway is that, despite the significant decline of the USD in 2025, it is within a few percent of where it was toward the end of September 2024 and is at a high level relative to the last 20 years. We hope this is an effective antidote to any hyperbolic news coverage you may have noticed.
Our second takeaway is the main takeaway. Currency fluctuations often have greater economic influence than tariffs, because currency is used in all international payments, such as services, foreign direct investment, travel, tourism, various financial payments, and trade in tariffed products. Global corporations often devote meaningful resources to managing currencies relating to both the corporate contracts and matching assets on the balance sheet with appropriate amounts of a specific currency. For example, because Berkshire Hathaway has been investing in Japanese businesses, it had $12.6 B of debt denominated in Japanese Yen at the end of 2024.2 Currency volatility can come from a wide range of sources at unpredictable times, and we have heard many conference calls in which the “earnings miss” was entirely blamed on unforeseeable or unmanageable currency fluctuations. We have also experienced a situation where for an extended period of time lackluster international sales were masked by a steady currency tailwind, and it was difficult to detect the deterioration in the fundamentals unless you really peeled back to the currency layer of the earnings onion.
Currencies move relative to one another based on many factors and among the more important factors are the relative economic, legal, and political stability of the countries, current or anticipated interest rate differentials, and supply and demand for currencies. Over the years, we noticed that several Argentine companies relocated their headquarters to Uruguay. The relative economic, legal, and political stability of Uruguay has resulted in a much more stable currency than the Argentine peso over the past 25 years, as the Argentine peso has experienced several crises. Despite all efforts to the contrary, the U.S. economic, legal, and political stability has allowed it to retain its status as the reserve currency of the world. This makes operating from the U.S. an enviable position, and it shows in the global market leadership of U.S. companies in many industries.
Regarding interest rate differentials, we know people who bought Hungarian bank CDs because of the high interest rates in Hungary, but the currencies moved in the wrong direction such that when the CDs matured, the investor received basically the same yield as if they had bought a short-term U.S. treasury.
Supply and demand also influence the value of currencies, and it is also interesting to note that currencies of countries that are heavily dependent on natural resources are often referred to as “commodity currencies.”3 Waning and waxing demand for the commodities creates waning and waxing demand for the currency, which can ultimately be the primary factor affecting the value of the currency.
Quite frankly, we feel less angst about all the hyperbole surrounding the topic of tariffs, given these reminders about the relative importance of currency movements. Furthermore, we believe the management of the companies you own are working conscientiously to manage the impacts of currency volatility on the financial performance of the companies, which we believe is ultimately the most important long-term driver of shareholder returns. You own the companies you own because we trust management to make good long-term decisions, and it is worth being reminded that if a policy mistake creates a temporary challenge for a strong company, it may pose a serious threat to weaker competitors. The strong companies can emerge from a challenging period even stronger.
Redmond Asset Management, LLC July 2025
The opinions contained in the preceding commentary reflect those of Redmond Asset Management, LLC (RAM). The stated opinions are for general information only and are not meant to be predictions or an offer of individual or personalized investment advice. They also are not intended as an offer or solicitation with respect to the purchase or sale of any security. This information and these opinions are subject to change without notice. Any type of investing involves risk and there are no guarantees. Redmond Asset Management, LLC does not assume liability for any loss which may result from the reliance by any person upon any such information or opinions.
Redmond Asset Management, LLC is an independent, SEC registered investment management firm located in Richmond, VA and is not affiliated with any parent organization. RAM was founded in 2005 and registered with the SEC on December 22, 2005. The company offers investment management services for equity, balanced and fixed income portfolios to corporate, institutional, and individual investors.
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