The dollar’s decline: implications for investors
The US dollar has experienced one of its most dramatic declines in decades, becoming a new focus of consideration for investors.
Authors
The US dollar has fallen 10% against major currencies year-to-date, making 2025 likely to mark the largest annual drop this century.
While opinions vary on the future trajectory of the dollar, it is easy to envisage a scenario in which the depreciation has further to run.
A weaker dollar has far-reaching implications for all global investors. These range from immediate portfolio effects to longer-term impacts on asset performance as economies, industries and individual businesses adjust to a lower-value dollar.
We explore these implications fully in these three in-depth insights.
1. Global inflation and growth
How might a weaker dollar affect inflation and growth across key economies?
This article examines the macroeconomic ripple effects of dollar depreciation, from stagflation risks in the US to disinflationary tailwinds in emerging markets. It also considers second-order effects, such as policy responses and trade dynamics. Read the full article.
2. Equity market implications
What could dollar weakness mean for global equity markets?
We explore how currency shifts may influence earnings, valuations, and sector performance across the US, UK, Europe, and emerging markets. The analysis highlights the importance of domestic growth, bond yields, and foreign revenue exposure in shaping equity outcomes. Read the full article.
3. Currency hedging strategies
How might investors adapt their hedging approach as dollar correlations change?
With the dollar’s traditional role as a portfolio hedge under pressure, this article explores how shifting correlations are affecting optimal hedge ratios for investors in different base currencies. Read the full article.
Overview: what a weaker dollar could mean for economies and markets
The implications of a weaker US dollar are neither straightforward nor uniform. While a weaker dollar may pose stagflationary risks for the US, it could deliver a powerful disinflationary impulse to the rest of the world through cheaper commodity imports and manufactured goods. For emerging markets in particular, this scenario could herald a new bull market, characterised by stronger currencies, falling inflation, faster growth, and dovish central banks.
However, the outlook is complex, with second-order effects and policy responses potentially creating both winners and losers. Trade tensions may intensify as cheap Chinese exports flood global markets, potentially triggering protectionist measures. Meanwhile, shifts in capital flows could dramatically alter the investment landscape, particularly benefiting supply-constrained emerging markets.
Regional impacts of a weaker dollar
Subscreva o nosso conteúdo
Visite o nosso centro de preferências e escolha que informação deseja receber por parte da Schroders.
Authors
Topics