Dollar’s Drop: Potential Portfolio Implications

Despite its ‘safe haven’ reputation, the US dollar’s recent fall to a three-year low against other major currencies is prompting investors to reevaluate their portfolios; in her comments below, Lale Akoner, global market analyst at eToro, breaks down the implications of a weaker dollar for retail investors, and discusses four moves to consider to reduce dollar exposure risk in their portfolios.

The US dollar’s recent slide has real consequences for investors. With the greenback weakening against the euro, yen, and even gold, this is the moment to reconsider whether your portfolio is too tightly tethered to US assets.

Before making any moves, it might be worth assessing whether the dollar’s decline is material to your circumstances. Globally diversified investors often welcome some currency moves, whereas those heavily skewed toward US stocks and bonds can see a falling dollar eating into real returns and purchasing power.

Investors seeking earnings tailwinds may lean into overseas equities. Foreign stocks, particularly in export-driven economies like Germany, Japan, and South Korea, often benefit from a cheaper dollar. Their goods become more competitive globally, boosting corporate earnings. Emerging markets, too, have been standout performers. In Q1, Chinese and Korean stocks led a surge in EM equity funds, thanks in part to a weaker dollar redirecting capital flows. If you’ve been riding the US mega-cap train too long, a tilt abroad could help restore some balance.

Gold is not just for glitter. Gold is more than a hedge and it has become the quiet winner of currency debasement. In fact, the dollar has lost nearly a quarter of its value against gold. A modest allocation can act as a shock absorber in turbulent times, offering protection against both inflation and geopolitical instability. Broader commodity exposure too, in energy, metals and agriculture, also typically rises when the dollar falls.

Investors wanting better FX balance could diversify their currency exposure. Holding wealth in one currency concentrates risk. Some investors are allocating to assets denominated in euros, yen, or Swiss francs. Others are using international funds with currency-hedged share classes to broaden the safety net and neutralize FX risk. The key is alignment: US investors anticipating continued dollar weakness often stay unhedged to capture gains abroad, while European or British investors holding US assets might prefer hedging to mute FX losses.

Investors aiming to preserve bond income may revisit fixed income. US Treasuries may look less appealing in a weaker-dollar, higher-inflation world. Instead, consider short-duration bonds, TIPS, and high-quality international debt, particularly from stable developed markets or carefully chosen emerging economies. These moves can help preserve yield and add global resilience.

The dollar’s stumble does not require a complete overhaul, however ignoring this trend risks being left behind. Economic leadership rotates, and portfolios should rotate with it. A thoughtful tilt toward international assets, inflation hedges like gold, and currency diversification could help offset the dollar’s drag and unlock fresh return streams.