The dollar is weakening. In simple terms, that means one U.S. dollar buys less, especially when compared to another currency, such as the euro. One year ago, on Feb. 2, 2025, the dollar and the euro were very close to parity. One dollar would buy 0.98 euros. Today, a dollar buys 0.85 euros. It buys 0.73 British pounds and 0.78 Swiss francs.
Conversely, one USD buys 155 Japanese yen.
The dollar has generally been declining since January 2025, when it closed above 109, and has recently fallen to a four-year low, down roughly 11% over the past year.
What does this mean for the dollar you spend or invest?
Tim Murray, a capital markets strategist at T. Rowe Price, believes there are four primary reasons the dollar will continue to fall after nearly 16 years of steady appreciation.
Fiscal concerns: The size of the national budget deficit puts pressure on the dollar as debt concerns mount.
Monetary policy: An expectation that there will be further cuts from the Federal Reserve. The market anticipates that the new Fed chair nominee, Kevin Warsh, will deliver rate cuts while “pretty much every other central bank is done,” Murray told Yahoo Finance. “The interest rate differential causes the dollar to weaken.”
Political policy is damping foreign demand: President Trump “is taking a little bit more of a transactional approach to foreign policy,” Murray said. That has led some countries to hold more of their foreign reserves in other currencies or in gold, reducing demand for the dollar.
Capital flows: When stock prices or asset values in other countries outperform those in the U.S., capital begins to move to those countries. Gold is another asset in demand. “If you look at the long-term charts of central banks, the amount of foreign currency reserves that were in gold still can go up further. It used to be much higher,” Murray noted.
Read more: How to invest in gold in 4 steps
Robin Brooks, a senior fellow in the Global Economy and Development program at the Brookings Institution, wrote in a recent Substack column that the dollar’s drop in April 2025, at the beginning of the Trump reciprocal tariffs, was 6%. “The current sell-off is less than half that, so there’s still lots of downside,” Brooks wrote.
“The fact that there wasn’t any meaningful drop means the hurdle for a shift away from the dollar is high because there is no alternative. President Trump’s invocation that dollar weakness is welcome will only accelerate what is already a steep fall. Lots more room for dollar weakness,” Brooks added.
Murray concurs: “If you look at where the dollar is versus its entire history, even after the recent weakness, it’s still pretty expensive relative to its history and its history versus most currencies.”
What will be the impact of a weaker U.S. dollar? Murray lists three negatives and one possible positive effect.
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Imported products may be more expensive, which, combined with tariffs, could raise inflation.
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Overseas travel costs may rise.
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Oil prices often rise when the dollar weakens because it is priced internationally in dollars. However, recent price moves have been more correlated with international political tension.
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U.S. manufacturers that export products may find their goods slightly cheaper to sell abroad. “I think that’s one of the reasons why Trump is probably not that bothered by a weaker dollar because if we really do want U.S. manufacturing to have a renaissance, then a weaker dollar helps that,” Murray added.
Both Murray and Brooks dismiss concerns that the falling dollar will cause Treasury yields to spike.
“A weaker dollar loosens global financial conditions and — if anything — increases demand from [emerging market] central banks for Treasuries. A repeat of the April 2025 Treasury market tantrum is thus very unlikely,” Brooks wrote.
Read more: What is the 10-year Treasury note?
For investors, Murray said an excellent way to hedge against a weak dollar is to own non-U.S. assets.
He pointed to emerging-market and local-currency bonds. Owning international stocks can be beneficial too, as the “U.S. investor will get whatever the actual returns of the stocks are, plus the currency return. If you look at how international stocks outperformed U.S. stocks fairly significantly last year, the majority of that actually came from currency return rather than actual return.”
With the dollar’s strength over the years, some investors moved away from holding international stocks in their portfolios. Murray said they may be apt to reallocate back to additional international exposure as the dollar weakens.
