The US Dollar Is Losing Strength. Could This Put Your Investments in Danger?

October 31, 2025

How is the declining dollar affecting your investments?

Importance: The major currencies faced a steep decline in the first half of 2025, which has made it a tough year for many. Although there’s been a slight recovery, it still hasn’t reached the levels from earlier in the year. Other currencies like the euro, yen, and peso have shown strength against the US dollar. Several factors could determine whether the dollar rises or continues to fall. So, why should its performance matter to you as a retail investor? Dan Lefkowitz from Morningstar Index Strategist shares insights on this and how you might safeguard your investments against currency swings.

9 Questions About the Weak US Dollar

First off, what’s happening to the dollar?
It’s likely many worried investors want to know how the stock market can grow in this economic climate.
And what’s the reason behind the good performance of bonds?
You discuss the dollar’s downturn. Historically, the dollar and gold compete as safe assets. This year, gold seems to take the lead. Why?
This year, international stocks have done better than US stocks. How does currency play a role here?
On the October 24 episode, Amy Arnott, Morningstar’s Portfolio Strategist, noted that investors might not be investing enough in international stocks despite their solid performance. What examples could you share to encourage more investment abroad?
Emerging market bonds look to be winning, thanks to the dollar’s performance. What makes this sector appealing to Morningstar?
What potential risks could threaten the dollar’s supremacy in the future?
Why should ordinary investors saving for retirement or other future goals worry about the dollar’s fluctuations? How can they protect their investments?

Key Remarks on the Weakening of the US Dollar

I think currency diversification is certainly a topic worth considering in global investing. The strongest argument, in my opinion, is about opening your portfolio to all opportunities. There are fantastic companies around the globe with solid economic advantages. Many of these firms are part of our daily lives, like European pharmaceutical companies, Japanese electronics firms, and Mexican airports. Also, certain segments of the AI supply chain have nodes outside the U.S.

Summary: A weaker US dollar is poised to impact numerous investors’ portfolios in 2025. According to Dan Lefkowitz, like other sectors, currency values are cyclical. Historically, US investors have gained by including foreign currency exposure in their portfolios. Regardless of your views on the dollar’s future, Lefkowitz argues that diversifying currency and embracing global markets makes sense.

Morningstar Insights on Dollar Weakness

Thanks to the dollar’s decline this year, emerging market government bonds have gained significant traction. Morningstar Investment Management highlights this asset class’s appeal, noting its strong correlation with stocks rather than bonds, despite inherent credit risks. However, higher yields and potential capital appreciation make it attractive, according to Lefkowitz.

The U.S. dollar appears to be overpriced and could face further declines in the years ahead, as noted by Morningstar’s Muhammad Hamza Saleem. He explores whether the dollar will keep dropping and identifies five factors that could influence its trajectory. If you missed the October 24 episode, the discussion spanned everything from gold to small-cap stocks, highlighting the leading and trailing asset classes of 2025.

Market Snapshot: The stock market’s polarization has seemingly split investors into two groups. Dan Kemp, chief research and investment officer at Morningstar Investment Management Europe, mentioned a wave of optimism around stocks viewed as leaders in artificial intelligence. For instance, Tesla is seen as full of potential by investors, despite its unproven future products. Conversely, there’s a wave of skepticism regarding markets unrelated to AI. Kemp advises looking for undervalued opportunities in less popular market sectors.

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