If you’re the same as most investors, you spend little or no time thinking about the US dollar. I start to worry.
The dollar has been declining significantly against other currencies recently.
The Primary US Dollar Index (DXY), listed under the nickname “Dixie,” measures the US currency against a basket of six people: the euro, Japanese yen, British pound, Canadian dollar, Swedish crona and Swiss franc. Euros are the much more weight in the basket.
Subscribe to Kiplinger’s personal finances
Be smarter, better informed investors.
Save up to 74%
Sign up for Kiplinger’s free e-newsletter
Remember profits and prosperity with expert advice on investments, taxes, retirements, personal finances and more – directly to email.
Profit and prosperity with the advice of the best experts – directly to your email.
Dixie has been sliding since the beginning of 2025, dropping from 109 to below 100 in the index.
However, currency fluctuations are not uncommon. In this century, the dollar index bouncing between 72 and 118. In 2008, the euro reached $1.57, and by 2022 the dollar was below parity at 98 cents. Currently, one euro is priced at $1.13. (Prices and other data are available until May 31st. My favorite investment is bold.)
The dollar decline has been particularly troubling, as inflation appears to be constrained and the economy has been strong over the past few years.
There are several reasons for the decline. Top of the customs. Typically, higher tariffs should strengthen the dollar by making foreign products attractive. “Appreciating currency is a general impact of tariffs,” says the Tax Foundation.
However, in this case, the chaotic, addressed, unaddressed tariff policies and subsequent court battles have caused deep uncertainty about US economic policies in general, causing investors to avoid the dollar.
Chaos usually favors the dollar as foreigners flee to US currency (mainly through US Treasury purchases). Because they see the United States as a safe haven amidst the storm. But that’s not happening. It’s exactly the opposite.
why? This is because economic disruption, including extreme volatility in the stock market, stems from the actions of the United States itself.
The dollar rose in value between 9/11 and the worst Covid. No one condemned the US economic decisions because of these disasters. But now global investors are concerned about the trade war that the US has fired and something else: the federal deficit.
The dollar is slipping as the US deepens its debt
As a percentage of gross domestic product (GDP), the deficit for the 50 years that began in 1960 was generally in the range of 2% to 3%. Recently, the standard has reached about 5%.
Financial company Alliance Bernstein is currently projecting 7% for the next 10 years, with debt interest exceeding $1 trillion per year.
Investors who may have hoped that the Republican administration would set the US on a more stable fiscal course are concerned about US instability, especially in the wake of a May downgrade of Treasury bonds by rating agency Moody’s. The dollar is bearing the brunt of those concerns.
The euro and yen are rising against the dollar, and the same is true of its stability as well as the Swiss franc.
This year, Alphabet (Googl) and Pfizer (PFE) sold bonds for euros worth around $100 billion. Harvard economist Kenneth Rogoff argues in his new book, Our Dollar, Your Problem, that the lofty status of the US currency is fading.
What does a decrease in the dollar mean to investors?
What does this mean for investors who believe that the dollar decline is not temporary?
First, understand that when the dollar falls, companies with a higher share of sales overseas are profiting as euro or yen revenues are reverting to the dollar.
That’s why I like US companies that are heavily exposed to international sales, especially those that sell services that are unlikely to be seriously injured, if ever, by a trade war that focuses on tariffs on materials.
A good example is Netflix (NFLX). According to an analysis by Goldman Sachs, approximately 59% of sales are overseas.
Reservation Holdings (BNK), which owns Priceline and Opentable, is among other services, and collects 89% of its overseas revenue. For MasterCard (MA), the number is 70%. 100% for Las Vegas Sands (LVS), which operates casino resorts in Macau and Singapore.
A few months ago I recommended European stocks, claiming that the continent is “shaking away from its lethargy.”
So far, the popular Exchange-Traded Fund, Ishares Europe ETF (IEV), has returned 22% compared to just 1.1% of the S&P 500.
If President Trump is socking Europe with big tariffs, as he threatened, European companies dealing with the US are at risk, but more domestic focus companies are spared.
More than ETFs that include large multinational corporations struggling with tariffs, I like European banks, including Italy’s Unicredit (Uncry) and Raiffeisen Bank International (Raife).
Another good choice is UBS Group (UBS), a Zurich-based bank with a strong asset management component. Stocks have tripled over the past five years, with a higher valuation than other European banks.
In this environment, look for Swiss people. Other attractive options are Zurich Insurance Group (Zurvy) and Swisscom (SCMWY). This is the largest telecommunications company in the country with the largest fiber optic network. In both cases, stocks are cleverly rising as the dollar drops.
Europe has a resilient currency that can survive the tariff storm, but I am not that optimistic about Asia. Almost every country is deeply connected with China, the main target of today’s US economic hostility.
Ranked among the top 10 countries of gross domestic product, Brazil offers attractive alternatives. Again, to avoid the risk of tariffs, the market is sticking to companies that are not domestic or regional and sells services. The real Brazilian currency has been gaining value recently, with inflation being modest (5.5%) due to continental standards.
One of Brazil’s best prospects is 82-year-old Banco Bradesco (BBD), with a variety of banks and insurance products. This year, it has increased by 56%, but the rating remains low.
Two small Brazilian caps offer a substitution, although attractive, yet risky. The first is Stoneco (STNE), which provides payment technology to countries’ businesses.
The second is Cogna Educacao (Cogny), which offers private education services online and on campus, from kindergarten to university. Both stocks are shedding tears.
How about trading the currency itself? With its heavy leverage and dangerous sharp movement, currency trading is exclusively for professionals. They also don’t advocate for investments in Bitcoin or gold as an antidote to the declining dollar.
While enthusiasts may prove that it’s right, I agree with Warren Buffett that Bitcoin is a “gambling token” and prefers to invest in the imagination of people who run good businesses.
The dollar is used in 50% of global transactions and may retain its status as a global reserve currency. But as the US’s reputation for the rule of law and economic stability declines, there is also the dollar.
Professor Rogoff is persuasive when he says that the US currency is “attempting to knock down some pegs.” A wise investor will want to use a portion of his portfolio to hedge against this unpleasant outlook.
Glassman Advisory, a public venue consulting firm for James K. Glassman Chair. He does not write about his clients. His latest book is Safety Net. This is a strategy to uninvestment in an era of turbulence. He does not own the securities mentioned here. You can contact him at jkglassman@gmail.com.
Note: This item was originally featured in Kiplinger Personal Finance Magazine. Subscribe to help you make more money and make more money here.
