This article first appeared in Capital, The Edge Malaysia Weekly on December 29, 2025 - January 4, 2026

THE ringgit was the star performer in Asia in 2025. It appreciated significantly against the US dollar (USD) as well as other major currencies, continuing its climb from the year before.

As at Dec 19, the local unit had strengthened more than 9% against the greenback year to date (YTD) and an even greater 10.1% against the Japanese yen.

More modest were its gains against the pound sterling (2.6%), Singapore dollar (3.8%) and Chinese renminbi (5.8%). However the euro proved more challenging as the ringgit declined 2.99%.

Against the USD, the ringgit’s first significant climb was between April and May, coinciding with the period of US President Donald Trump’s Liberation Day tariff announcement. In the month of April, the ringgit rose from 4.45 to 4.431 before climbing to 4.201 on May 5 after which it lost some steam and slipped to 4.3217 on May 13.

To be clear, the ringgit’s ascent can also be attributed to USD weakness, as many have pointed out.

In a Monthly Currency Review report on May 2, MBSB Research (formerly known as MIDF Research) highlighted that the volatility within the US currency market prompted outflows towards alternative safe-haven assets, from which the ringgit benefited.

“The reduced demand for the US dollar was influenced by uncertainties surrounding the changing US trade policies, as sentiment on the economic outlook deteriorated further. The implementation of new US tariffs carries the potential to amplify inflationary pressures over the medium term, despite the announced 90-day pause in reciprocal tariffs and ongoing negotiations with the US trading partners,” MBSB said in the report.

The ringgit’s appreciation against the USD turned obvious again in the fourth quarter, and from 4.233 in mid-October it continued on a steady climb to 4.0753 as at Dec 19.

Can it break the RM4 mark next year?

As of now, a survey on Bloomberg shows that it may not. The median quarterly forecast for the ringgit on Bloomberg stands at 4.11 in 1Q2026, 4.10 in 2Q2026, 4.09 in 3Q2026 and then finally down to 4.07 in 4Q2026.

Finance Minister II Datuk Seri Amir Hamzah Azizan is more optimistic.

In an interview with Bloomberg in October, he opined that the ringgit may strengthen to “just below” RM4 versus the USD in 12 months, supported by strong fundamentals.

The ringgit’s outperformance this year has been attributed to many factors. Chief among them is the political stability Malaysia is currently enjoying after the tumultuous years between 2018 and 2022, which saw four different prime ministers over a very short period owing to shifting political alliances that resulted in new administrations.

Adding to the turmoil was the Covid-19 pandemic that tested not just the Malaysian government, but governments around the world.

Analysts say that the ringgit’s strength has also been supported by resilient domestic demand, as the economy continues to grow at a modest pace and is projected to hit the higher band of the official forecast of 4.8% this year.

Putrajaya’s commitment to prudent fiscal management and ongoing structural reforms have all added to the improving investor sentiment and confidence.

Furthermore, expectations that Bank Negara Malaysia will continue to hold the overnight policy rate (OPR) unchanged at 2.75% in 2026 have also been positive for the currency as this means that rate differentials are expected to tilt in favour of the ringgit. At the same time, the US Federal Reserve is expected to take several more cuts to its key interest rates next year.

Meanwhile, the firmer Chinese renminbi riding on strong trade data has also had a positive effect on emerging market currencies, including the ringgit.

The USD, meanwhile, tells a contrasting story to the ringgit this year. For the first half of 2025, the Dollar Index (DXY), which measures the greenback against a basket of currencies of the US’ major trading partners, fell about 11% from January to end-June.

The decline marks the end of a structural bull cycle for the dollar that began in 2010 and ended in 2024, with an accumulated gain of about 40%, observed Morgan Stanley in a research report in August.

On a YTD basis, the DXY is down 9.23%.

Nearly all G10 currencies have appreciated against the USD YTD, with the Japanese yen as the exception given its 0.08% decline against the USD. Leading the appreciation is the Swedish krona’s 18.83%, followed by the Swiss franc (14.02%) and the euro (13.01%).

Among selected Asian currencies, the ringgit has gained the most against the USD YTD, at 9.72% as at Dec 19, followed by the Thai baht (8.37%) and Singapore dollar (5.64%).

Among selected Asian currencies tabulated by The Edge that depreciated against the USD, were the Indian rupee — down the most by 4.51% — followed by the Indonesian rupiah and Vietnamese dong at a decline of 3.84% and 3.17% respectively.

The USD’s decline has been linked to several factors, the main one being Trump’s “big beautiful bill” this year, which led to concerns over the country’s deficit levels, adding pressure on the dollar.

US debt levels have reached a record eye-watering US$37 trillion (RM150 trillion) — equivalent to over 120% of the country’s gross domestic product (GDP).

Concerns over Trump’s “big beautiful bill” that provides funding for large-scale government programmes and infrastructure development as well as tax cuts for corporates and individuals, centre on how the government will manage its finances going forward since it will raise the US’ long-term debt.

Geopolitical risk has also added downside pressure as investors dislike policy uncertainty.

“Geopolitics has become a more important driver of US currency risk. Tariff announcements have already reshaped growth and inflation forecasts, with the US appearing especially exposed relative to other economies. The US-China rivalry remains the most important flashpoint, while Russia’s ongoing war in Ukraine continues to create uncertainty … Any scenario that draws the US more directly into conflict would carry significant downside risk for the dollar, particularly if paired with weaker investor confidence in US institutions,” MorningStar observed in an Oct 8 commentary.

What has also become a concern for investors and affected the USD are concerns surrounding the independence of the Fed as Trump had threatened to replace current chair Jerome Powell after the Fed’s refusal to bow to his pressure and lower interest rates earlier in 2025.

With Powell’s term set to end next May, his successor will be keenly watched and any sign of policy being influenced could make investors wary and reduce the attractiveness of the USD, analysts caution.

The greenback may have depreciated against a number of major currencies this year, but the US equity markets are another story altogether.

Wall Street continued to rally in 2025, led by the artificial intelligence (AI) theme as mega cap technology stocks led the way. The Dow Jones Industrial Average climbed 13.14% to 47,951.85 points as at Dec 19 while the S&P 500 gained 16.2% over the same period to 6,834.5 points.

Even so, it was eclipsed by the equity market’s superstar performer — South Korea’s Kospi Composite Index, which jumped 67.56% YTD to 4,020.55 points on the back of AI-driven demand, with Samsung Electronics and SK Hynix adding on a hefty 99% and 219% respectively.

Analysts also say that South Korean President Lee Jae Myung’s pledge to improve corporate governance standards and shareholder return have also helped to raise investor confidence in the stock market and fuel the rally.

Lee vowed to end the “Korean discount” — often described as the historically low valuations suffered by South Korean listed companies compared with peers — because of weak shareholder protection and opaque governance.

Locally, the benchmark FBM KLCI’s performance was far more muted, inching up only 1.44% YTD, and closing at 1,665.9 points on Dec 19.

Market sentiment in the equities market has been weighed down by persistent and heavy foreign selling, with net outflows surging to RM20.3 billion in the first 11 months of 2025 — nearly five times more than 2024 and the highest annual foreign outflow since 2020, CIMB Securities said in a report.

Among the Asean-5 markets, the FBM KLCI only performed better than the Philippine Stock Exchange Index’s 9.61% YTD loss and Thailand SET’s 10.57% decline. 

The Jakarta Composite Index may have been volatile last year, but it was also the biggest gainer putting on 21.61%, followed closely by the Singapore Straits Times Index’s 20.65%.

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