How is the weakening dollar affecting your portfolio?
Why it matters: The world’s reserve currency fell sharply in the first half of 2025, making it a bruising year. It has recovered some but still sits below where it started the year. Other currencies like the euro, Japanese yen, and Mexican peso look stronger against the greenback. Several factors could influence whether the dollar roars back or recedes. Why should the dollar’s performance matter for everyday investors like you? Morningstar Indexes strategist Dan Lefkovitz explains why and what you can do to protect your portfolio from currency fluctuations.
9 Questions on the Weak US Dollar
- Let’s start with an easy question. What has been going on with the dollar?
- A lot of worried investors are likely asking the same question: How is the stock market going up in this macroeconomic environment?
- And why are bonds doing well?
- You have written about the implications for a declining dollar. The dollar and gold typically compete as safe haven assets. It looks like gold is winning this year. Why is that?
- International stocks are outperforming US stocks this year. How does currency play into this?
- Our colleague Morningstar Inc portfolio strategist Amy Arnott joined me on Investing Insights for the Oct. 24 episode. She said investors might be underweight in international stocks despite recent performance. What case would you make to convince folks to consider increasing their overseas exposure?
- Emerging-markets debt is another asset class winning thanks in part to the dollar. Why does Morningstar find this fixed-income segment attractive?
- What risks could threaten the dollar’s dominance in the future?
- Why should everyday investors who are saving for retirement or other goals care about whether the dollar falls or rises? And how can they hedge their bets?
Key Quote on the Weak US Dollar
I think currency diversification is definitely an argument for investing globally. But to me, the strongest argument is just opening up your portfolio to the full spectrum of opportunity. There are some great companies domiciled across the globe that have economic moats or durable competitive advantages around their businesses. Many of these are companies that we interact with daily, whether they’re European pharmaceutical companies or Japanese electronics manufacturers, or Mexican airports. There are even some nodes on the AI supply chain that are outside of the US.
Dan Lefkovitz, strategist, Morningstar Indexes
The Takeaway: A weakening US dollar has affected many investor portfolios in 2025. Currency values go in cycles, just like all market segments, says Morningstar Indexes strategist Dan Lefkovitz. There are many historical periods where it has benefited US investors to have foreign-currency exposure built into their portfolios. No matter your views on the dollar’s direction, currency diversification and global exposure makes sense, says Lefkovitz.
More From Morningstar on the Weak US Dollar
Emerging-market debt is winning thanks in part to the dollar’s decline this year. Morningstar Investment Management finds this niche asset class attractive. It’s highly correlated to stocks and not fixed-income, and there’s a lot of credit risk. But it comes with high yields and potential capital appreciation, says Lefkovitz.
The US dollar sits in overvalued territory with likely depreciation ahead in the years to come, writes Morningstar’s Muhammad Hamza Saleem. The associate investment analyst explores whether the dollar will keep falling and five factors that could influence the currency’s future. In case you missed the Oct. 24 episode of Investing Insights, watch 2025’s Winners and Losers, From Gold to Small-Cap Stocks to the 60/40 Portfolio. Amy Arnott, Morningstar Inc. portfolio strategist, discussed this year’s somewhat surprising group of leading and lagging asset classes.
Markets Brief moment: The bifurcation of the stock market is appearing to divide investors into two camps. There’s a lot of optimism baked into share prices of firms seen as leaders in artificial intelligence, according to Dan Kemp, chief research and investment officer at Morningstar Investment Management Europe. The Market Brief author points to Tesla TSLA as a great example, since investors are ascribing significant value to the company’s unproven, future products. Meanwhile, there’s a lot of pessimism in parts of the market that are not involved in AI. Kemp reminds investors to look for undervalued opportunities in the unloved areas of the market.
Securities mentioned in this episode:
Taiwan Semiconductor Manufacturing Co Ltd 2330
ASML Holding NV ASML
Tesla TSLA
Morningstar, Inc., licenses indexes to financial institutions as the tracking indexes for investable products, such as exchange-traded funds, sponsored by the financial institution. The license fee for such use is paid by the sponsoring financial institution based mainly on the total assets of the investable product. A list of ETFs that track a Morningstar index is available via the Capabilities section at indexes.morningstar.com. A list of other investable products linked to a Morningstar index is available upon request. Morningstar, Inc., does not market, sell, or make any representations regarding the advisability of investing in any investable product that tracks a Morningstar index.
Morningstar Investment Management LLC is a Registered Investment Advisor and subsidiary of Morningstar, Inc. The Morningstar name and logo are registered marks of Morningstar, Inc. Opinions expressed are as of the date indicated; such opinions are subject to change without notice. Morningstar Investment Management and its affiliates shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions or their use. This commentary is for informational purposes only. The information data, analyses, and opinions presented herein do not constitute investment advice, are provided solely for informational purposes and therefore are not an offer to buy or sell a security. Before making any investment decision, please consider consulting a financial or tax professional regarding your unique situation.
