What To Do With a Freediving Dollar?
- 072525
- 3 minutes
The US dollar has in the past been the world’s de facto international currency, offering relative stability even during troubled times. But the first half of this year saw the most drastic downturn in the dollar’s value in over half a century. What’s driving this change? And what does it mean for us both as USD users and as investors?
To begin, let’s talk about what we mean by a “weak dollar.” This refers to the dollar’s value relative to the value of other foreign currencies. The US Dollar Index, which tracks the dollar’s value against the currencies of six of the U.S.’s biggest trading partners (Great Britain, Japan, Canada, Switzerland, Sweden, and the Eurozone), fell a stomach-dropping 10.8% in the first half of 2025. Practically speaking, that means that when exchanging USD for these other currencies, we would receive on average 10.8% less than what we would have gotten at the end of 2024— a rather significant change.
The biggest factor impacting the dollar’s relative value appears to be skepticism from investors, both domestically and, more significantly, internationally. Late last month, Bank of America’s Hubert Lam and Christiane Holstein attributed the sentiment shift to “mounting concerns over protectionist trade measures, abrupt policy shifts, a rising deficit, and a proposal for taxes targeting foreign investors in the US.” Investors are increasingly moving away from the dollar to commodities they view as more stable or promising, such as the euro or gold. With foreigners no longer buying US assets like stocks and bonds as they did in previous years, the country is receiving less foreign income— and the dollar’s value is dropping as a result.
A weak dollar has some distinct disadvantages to us as dealers in USD. Overseas travel won’t be quite as sweet: our dollars won’t stretch as far as they used to. But even if we're planning on staying stateside, inflation rates are likely to creep back up. Our heavy reliance on imports coupled with declining purchasing power will affect both businesses and, ultimately, consumers.
But it’s not necessarily all bad news. While international travel for USD users is effectively more expensive, foreign vacationers would find a US trip more affordable than in years past, potentially giving the domestic hospitality industry a boost. Similarly, the higher cost of imports also means that US exports may look more attractive to international buyers with increased purchasing power.
As investors, we may seek to benefit from opportunities created by shifts in the global market like this one. For example, most commodities traded on international markets are priced in USD, so their prices will rise as the dollar’s value drops. Investments in international stocks or currencies — via currency baskets, exchange-traded funds (ETFs), or directly — might also be appealing, offering an alternative to the current uncertainty around USD-based investments.
That said, diversification and personally tailored risk management are, as always, first and foremost in a solid financial planning strategy. Diversity not only across asset classes but within asset classes — e.g., by investing internationally — can help mitigate potential losses from any localized volatility. Since a weakened dollar means a higher USD value of foreign assets, a globally diversified portfolio may take losses in some investment types while gaining in others, effectively shielding an investor from sudden unexpected volatility in any one area.
The drastic drop in the dollar’s value took many by surprise, but it needn’t be a source of ongoing anxiety. If you’re entrusting your wealth management to a financial advisor, make sure that (s)he knows your situation well: Not just your investment horizon, but things like your personal situation, specific investment goals, and capacity for risk can all inform a good advisor on how best to allocate. And if you’re already part of the FNA family, know that we’re keeping a sharp eye on this current situation.
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