The global currency landscape in 2025 has served investors a paradox that is both intriguing and highly instructive. On a year-to-date basis, the US Dollar Index (DXY) has corrected by more than 10%. At first glance, such a sharp retracement in the greenback should have been a tailwind for emerging-market currencies. The textbook expectation is straightforward: when the dollar weakens, capital flows into higher-yielding EM assets, and their currencies strengthen.
Yet, the Indian Rupee (INR) has defied this conventional script. Instead of appreciating, the rupee has slipped further, with USD/INR moving higher. This divergence is not just a statistical quirk. It offers a powerful lesson on why currencies cannot be analyzed in isolation and why the DXY is a poor proxy for the dollar’s bilateral dynamics with emerging-market units. For fund managers and HNIs, it also presents actionable implications for equities, bonds, commodities, and global allocations.
