The US Dollar: Its Impact and Analysis in the Saudi Financial Market 2024-2025

The US dollar (USD) is the official currency of the United States and is considered the world’s primary reserve currency, with most central banks holding a significant portion of their reserves in dollars. Corporations and governments worldwide use the dollar for pricing, financing, and international contracts. In the Saudi context, the dollar is the backbone of foreign liquidity, used to price oil—the kingdom’s main source of income—and to pay for most of Saudi Arabia’s imports. On the financial front, the Saudi Central Bank (SAMA) aligns its monetary policies with the US Federal Reserve, especially regarding interest rate decisions, to maintain the stability of the riyal-dollar peg. This close relationship makes the dollar the most influential factor in Saudi Arabia’s fiscal and monetary policy.

Since the 1980s, Saudi Arabia has maintained a fixed exchange rate policy, pegging the riyal to the dollar at around 3.75 riyals per dollar. This peg is a key pillar of monetary stability in the kingdom, preventing sharp fluctuations in the local currency’s value and facilitating international trade and foreign investment. The Saudi Central Bank, SAMA, closely monitors developments in currency markets and intervenes when necessary to ensure the peg’s stability. In 2025, the dollar exchange rate stood at approximately 3.7508 Saudi riyals, according to official reports. This stability reduces the risk of local price volatility and enhances investor confidence in the Saudi financial market. However, maintaining the peg requires careful management of foreign reserves and swift responses to global changes in interest rates and liquidity.

The dollar is not just a reserve currency in Saudi Arabia; it is the cornerstone of the national economy. Firstly, oil—the kingdom’s primary resource—is priced in dollars on global markets, making Saudi government revenues directly tied to the dollar’s value. Secondly, most Saudi imports, from consumer goods to heavy equipment, are priced and paid for in dollars, meaning any movement in the dollar’s value directly affects living and production costs. Thirdly, the kingdom’s foreign investments, whether in US Treasury bonds or other dollar-denominated assets, further underscore the need to monitor dollar movements. Finally, attracting foreign investment requires a stable monetary environment, which the dollar peg provides by offering currency risk certainty. Thus, the dollar is a key barometer for Saudi growth and inflation expectations.

During 2024 and 2025, the dollar maintained its stability against the Saudi riyal, with the official exchange rate at 3.7508 riyals per dollar in May 2025. This stability extended to other foreign currencies against the riyal: the British pound was about 4.99 riyals, the euro 4.22 riyals, and the Kuwaiti dinar 12.22 riyals. Such stability helps build a balanced economic environment and limits the risks of exchange rate volatility across various sectors. However, global changes in the dollar’s value—whether up or down—indirectly affect the Saudi economy through import costs and financial transfers. Therefore, monitoring US monetary policy and dollar developments remains essential for both investors and policymakers in Saudi Arabia.

The monetary peg between the riyal and the dollar is underpinned by a strong base of foreign reserves managed by SAMA. The majority of these reserves are denominated in US dollars and include US Treasury bonds and other financial assets. These reserves enable the central bank to intervene in the currency market when necessary to maintain the peg. In recent years, Saudi foreign reserves have reached hundreds of billions of dollars, according to SAMA’s quarterly data. These reserves not only ensure exchange rate stability but also boost the kingdom’s credit rating and enhance its appeal to international investors. Managing reserves requires a careful balance between yield and liquidity, especially amid global changes in interest rates and monetary policies.

Saudi monetary policy closely follows the US Federal Reserve due to the riyal-dollar peg. When the Federal Reserve raises interest rates, SAMA typically follows suit with similar increases in local rates. The goal is to maintain the riyal’s attractiveness and prevent capital outflows to US markets. In 2024, SAMA raised interest rates in parallel with the Federal Reserve’s tightening to combat inflation. As US inflation indicators improved by late 2024 and early 2025, SAMA began to gradually ease rates. This close linkage highlights the Saudi economy’s sensitivity to US monetary policy decisions and the importance for both investors and individuals to monitor these developments.

The US dollar dominates the foreign exchange (forex) market as the world’s leading reserve currency, but it faces notable competitors. The euro is the second most important in terms of reserves and liquidity and is a major component of the US Dollar Index (DXY). The Japanese yen is the third most significant reserve currency and is widely used in international trade. The British pound and Chinese yuan are also gaining ground, especially as China seeks to internationalize the yuan for oil pricing and certain trade transactions. Meanwhile, some countries are exploring alternatives to the dollar, such as gold or digital currencies, but the dollar remains the primary standard for global trade and commodity pricing—particularly in the Saudi economy.

The dollar directly affects several economic sectors in Saudi Arabia. The oil sector is most closely tied to the dollar, as oil exports are priced and settled internationally in dollars, making government revenues dependent on the dollar’s value. In banking and financial services, Saudi institutions closely track the dollar’s movements, adjusting credit policies and interest rates in line with the US Federal Reserve to maintain liquidity and the attractiveness of riyal deposits. Dollar stability also influences remittance activity, as individuals and companies rely on the dollar for international transfers. Industrial and consumer sectors are impacted by the cost of dollar-priced imports, making the dollar a key factor in determining local goods and services prices.

Pegging the riyal to the dollar provides significant monetary stability for the Saudi economy, reducing exchange rate risk, stabilizing local prices, and supporting long-term financial planning for businesses and individuals. The peg also boosts investor confidence, both domestic and foreign. However, this system presents challenges: it limits the Saudi Central Bank’s ability to pursue independent monetary policy and makes the economy highly sensitive to changes in US monetary policy and interest rates. The kingdom is also exposed to sudden shifts in the dollar’s global value, especially during financial crises or geopolitical tensions. Balancing stability and monetary flexibility remains a strategic issue for Saudi policymakers.

During 2024 and 2025, the Saudi market saw no fundamental changes to the currency peg policy, with the Saudi Central Bank reaffirming its commitment to the dollar peg. Interest rate movements mirrored US Federal Reserve decisions, while the riyal’s exchange rate remained notably stable. Internationally, Saudi Arabia continued investing in dollar-denominated instruments and participated in discussions to support affected regional currencies. Reports emerged of the kingdom considering accepting the yuan for some future oil transactions, but the dollar remained dominant. Saudi Arabia also explored developing a central bank digital currency to enhance financial services, without abandoning the dollar. Amid these developments, the Saudi financial market maintained its stability, benefiting from conservative fiscal policies and robust reserves.

Stability in the riyal-dollar exchange rate significantly contributes to stable local prices for goods and services in Saudi Arabia. Since most imports are priced in dollars, a stable exchange rate prevents currency fluctuations from affecting imported goods prices and limits imported inflation. In recent years, despite global volatility from wars or pandemics, Saudi Arabia has maintained relatively low inflation rates compared to many countries, partly due to the fixed dollar peg. However, if the dollar appreciates globally, the cost of non-oil imports may rise, while a weaker dollar can ease inflationary pressures. Thus, authorities closely monitor dollar movements to adjust fiscal policies as needed.

The Saudi Central Bank (SAMA) is responsible for managing monetary policy and ensuring the stability of the national currency. SAMA employs various tools, including interest rate adjustments, foreign reserve management, and currency market intervention when needed. When US interest rates or global financial markets shift, SAMA acts promptly to maintain the currency peg. It also closely monitors capital flows and manages liquidity in the banking system. Additionally, SAMA publishes regular reports on reserves, interest rates, and fiscal policy, enhancing transparency and trust in the Saudi financial system. Thanks to prudent management, the kingdom has weathered many global financial crises without major fluctuations in the riyal’s exchange rate.

To monitor dollar movements and their impact on the Saudi market, it is important to rely on official and trusted sources. The Saudi Central Bank publishes regular reports on exchange rates, reserves, and interest rates. Global economic news platforms such as Bloomberg, Reuters, and Al Arabiya Business provide comprehensive analyses of global dollar trends. Investors can use stock analysis platforms like SIGMIX to track sectoral indicators and analyze the dollar’s impact on various sectors. It is important for citizens and investors to understand that riyal-dollar stability reduces price volatility risks and provides a suitable environment for long-term financial planning. Always consult multiple sources and platforms for a well-rounded analysis and make informed financial decisions.