Published on Jan 27, 2026 • Updated on Oct 8, 2026
This article was written by Adem Tumerkan
Content Editor, Dunham | 2025 ThinkAdvisor Luminaries Award Winner | 2026 Wealthies Finalist, Thought Leader of the Year | Macroeconomics, markets, geopolitics & global trends
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You’ve probably heard about the “debasement trade” - investors buying assets like gold because they’re worried about currencies losing purchasing power.
But there’s a key distinction.
A dollar losing purchasing power isn’t the same thing as a dollar falling against other currencies.
Said another way, when someone says the dollar is "weak" - ask: compared to what?
The euro? The yen? A broader basket of trading-partner currencies? Or are they talking about what it buys - from groceries to gold?
The ICE U.S. Dollar Index - commonly called $DXY - measures the dollar against six currencies. And the euro accounts for 57.6% of that basket. That makes $DXY useful - but it isn’t the whole picture of the dollar’s performance against U.S. trading partners.
For example, a decline in $DXY could be largely driven by weakness against the euro, even while the dollar strengthens against some Asian currencies. Thus, a “weak dollar” doesn’t necessarily mean it’s weak across the board.
But there is no doubt that currencies are always moving. But broader trends can take hold, with the dollar strengthening or weakening against several currencies and assets over time.
And that’s different from losing purchasing power as prices rise.
For investors, the question is how those changes flow through the economy - from the price of imports to company earnings and the investments in your portfolio.
That’s where the risks and opportunities start to look different.
Let’s break it down.
Currencies are relative - when one weakens, others strengthen. So, if the dollar is dropping, other currencies (and their local assets) are rising in value.
Put simply, a weaker dollar means it doesn’t buy as much abroad as it once did.
That means your dollar buys 10% fewer euros. And buying the same €1 now costs about $1.11 instead of $1.
But riddle me this: is the euro stronger - or is the dollar just weaker? Either way, the effect is the same - your dollar buys less.
And that loss of buying power shows up everywhere - from overseas vacations to imported goods.
The dollar doesn’t move for just one reason. Interest-rate expectations, trade policy, fiscal concerns, and demand for safe assets can all pull it in different directions.
The 2025 selloff offers a useful example. Tariff uncertainty and concerns about Fed independence weighed on sentiment. But the dollar later attracted safe-haven demand when the Iran conflict escalated in March 2026. Different shocks can produce different currency reactions.
The point is, think of a currency as a product in a market. If fewer people want it - or if there's too much of it - its price goes down.
This is especially important for the U.S. economy, which is heavily dependent on imports. In 2024:
Put simply, the dollar weakens = imports cost more = businesses face higher input costs = consumers pay more at checkout.
A weaker U.S. dollar doesn’t just affect consumers and businesses - it also has ripple effects across different asset classes. Here’s how:
And like all things in economics, there are winners and losers.
Clients hear "weak dollar" and think loss. And as loss aversion research shows, investors feel losses roughly 2.5x more intensely than equivalent gains - so headlines about a weakening currency can trigger fear even when the fundamentals offer opportunity.
The reframe: A currency move isn’t automatically a crisis - or an opportunity - because the context matters.
Use this moment to:
That's genuinely uncertain - and intellectually honest advisors should say so.
There are real cases on both sides. We've covered the strong dollar case in our piece on the global dollar shortage and the weak dollar case in our global currency reset analysis. Both deserve a read before drawing conclusions.
What's clear is that the forces driving this decline - debt levels, trade tensions, and Fed policy credibility - are structural.
A weak dollar isn't always bad. It's a rebalancing - from imports to exports, from domestic focus to international opportunity.
The key is to see dollar weakness clearly - not as automatically good or bad, but as a shift that changes where risks and opportunities may appear.
What does a weak dollar mean for investors? A weak dollar means the U.S. currency buys less foreign currency. That can increase the dollar value of unhedged foreign investments, but it doesn’t guarantee a positive return. The underlying investment’s performance and the exchange-rate change both affect the result.
Do international investments benefit from a weaker dollar? They can. When a foreign currency strengthens against the dollar, investments denominated in that currency translate into more dollars, all else equal. Currency hedging can reduce that effect. A currency gain can also be outweighed by losses in the underlying stocks or bonds.
Does a weaker dollar always cause inflation? No. Dollar depreciation can raise import costs, but the impact on consumer prices depends on how businesses adjust prices and margins, along with other economic conditions. Federal Reserve research finds that exchange-rate changes don’t necessarily translate into equally large changes in consumer prices.
Does a weaker dollar always push commodity prices higher? No. Commodity prices have often moved inversely to the dollar, but that relationship isn’t fixed. BIS research finds that changing U.S. energy trade has altered the relationship, making a simple “dollar down, commodities up” rule unreliable.
This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel. Any investment products or services named herein are for illustrative purposes only and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance. All examples are hypothetical and are for illustrative purposes only.
Information contained in the materials included is believed to be from reliable sources, but no representations or guarantees are made as to the accuracy or completeness of information. This document is provided for information purposes only and should not be considered as investment advice.
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