Global events have been driving a lot of activity in financial markets. High oil prices, international tensions, and new tariff policies have all been grabbing investor attention. But one important factor behind many of these trends is the value of the U.S. dollar. Currency movements may not always make the headlines, but they can have a big impact on your portfolio — influencing international investments, commodities like gold, and the overall economy.
Over the past few years, one notable development has been the decline of the dollar from its 2022 high. More recently, the dollar has bounced back somewhat, as investors tend to move money into dollar-based assets when the world feels uncertain. So, what does this mean for everyday investors? And how does it connect to the performance of international stocks and gold? Understanding these relationships can help investors stay on track and keep their portfolios aligned with their long-term financial goals.
Three things investors should know about the dollar
The dollar reached a peak around 114 on the dollar index (DXY) in 2022, then began to weaken as global economic conditions stabilized and investors started looking beyond U.S. markets for opportunities. That trend picked up speed last year when tariffs pushed the dollar below 100 for the first time in three years. This year, the dollar has recovered somewhat, as global tensions have pushed investors toward safer assets. Even so, looking at the longer-term picture, the dollar remains stronger than its historical average, even if it is below its all-time high.
There are three key things to understand about the dollar in today’s market. First, a stronger dollar is not always a good thing. For everyday consumers, a strong dollar feels beneficial — it makes imported goods cheaper and international travel more affordable. But that is only part of the story.
A strong dollar can hurt businesses that sell their products overseas, because their goods become more expensive for foreign buyers. This is one reason some countries have historically been accused of deliberately keeping their currencies weak — it gives their businesses a pricing advantage in global markets. The ideal value for a currency is one that strikes a balance between the needs of consumers, businesses, and the broader economy.
Second, from a big-picture economic standpoint, the value of the dollar depends on many global factors, including differences in interest rates between countries, trade flows, and government spending policies. These factors have shifted significantly over the past few years, as the Federal Reserve (the U.S. central bank) moved from raising interest rates aggressively to cutting them, and then pausing — all while new tariffs were introduced.
Interestingly, last year’s tariffs did not strengthen the dollar the way economic theory would have predicted. Instead, the dollar weakened. This is partly due to what is called the “debasement trade” — the idea that certain government policies could gradually weaken the dollar’s economic standing. This includes large, ongoing budget deficits, which are likely to come back into focus later this year as budget discussions in Washington heat up ahead of the November midterm election.
Third, since late January, the dollar has risen from its lows as international tensions have led investors to seek safety in dollar-based assets. This rebound is a reminder that during periods of global stress, the dollar and U.S. Treasury bonds (government debt) tend to attract investment. It reflects the fact that the dollar is still the world’s most important currency, especially in uncertain times.
The dollar still makes up the largest share of global currency reserves and is used in a significant portion of international trade. While concerns about the dollar losing this special status are not new — similar worries arose during Japan’s rise in the 1980s, the launch of the euro in the early 2000s, China’s rapid economic growth, and more recently with the rise of digital currencies — the dollar continues to attract investors during difficult periods, and any changes are likely to be gradual.
A weaker dollar has helped boost international stock returns
One important effect of the dollar’s decline over the past year has been its positive impact on international stock market returns. In 2025, both developed markets (think Western Europe, Japan, and Australia) and emerging markets (think Brazil, India, and China) delivered strong results. The MSCI EAFE index, which tracks developed markets outside the U.S., returned 31.9%, while the MSCI EM index, which tracks emerging markets, returned 34.4% — both measured in U.S. dollar terms. These results were well ahead of the S&P 500, which tracks large U.S. companies, underscoring the value of investing in markets outside the U.S.
To understand why currency values matter, it helps to think about how international investing works. When you invest in stocks from other countries, those investments are priced in local currencies. That means you are indirectly holding those currencies. If the dollar weakens, those foreign currencies are worth more in dollar terms when you convert them back — which boosts your returns. So currency movements can make a meaningful difference in how international investments perform for U.S.-based investors.
Beyond currency effects, pricing also matters. International markets have been trading at a notable discount compared to U.S. stocks for some time. Developed markets have a price-to-earnings ratio (a common measure of how expensive a stock market is) of 14.9x, and emerging markets are at 11.8x, compared to 19.9x for the S&P 500. This does not tell us what returns will be in the short term, so it is not a signal to buy or sell. However, it is a useful factor when deciding how to build a balanced portfolio.
So far in 2026, international markets have continued to modestly outperform the S&P 500, even as the dollar has partially recovered. Both developed and emerging markets are up slightly on the year, while U.S. indices are slightly negative. This is a meaningful shift after years of consistent U.S. stock market leadership, which had led some investors to question whether holding international stocks was worth it. For long-term investors, this is a reminder that different types of investments take turns leading the market, and that holding a mix of global investments can lead to more consistent results over time.
Gold has pulled back along with other assets
Gold has been one of the most talked-about investments in recent years, and many of the same factors that affect the dollar also affect gold. Rising government deficits, lower interest rates, global tensions, and concerns about currencies losing value over time have all contributed to a strong multi-year rally in gold prices. These forces pushed gold to all-time highs as recently as late January, when it reached $5,417 per ounce.
Since then, gold has dropped roughly 14% from that peak — even though global uncertainty has remained high and many of the factors that originally pushed prices up are still in place. This might seem surprising to investors who hold gold specifically because it is considered a “safe haven” — meaning an asset that holds its value during turbulent times.
Part of the explanation is that gold had already attracted a lot of investor interest during its recent rally. When many investors buy gold expecting prices to keep rising, gold can start behaving more like other investments. For example, during periods of market stress, investors may sell gold alongside stocks rather than holding it as a stabilizer — especially when they are shifting money back into the dollar. This helps explain why gold’s recent decline has coincided with a stronger dollar.
This is not the first time gold has behaved unexpectedly. Between 2011 and 2020, gold prices were essentially flat, even while the Federal Reserve kept interest rates very low for much of that period and financial markets went through several periods of significant turbulence. Gold was also relatively flat during the inflationary period from 2022 to early 2024 — a time when rising prices would typically be expected to boost gold — because the Fed was raising interest rates rapidly, making cash and short-term bonds more attractive alternatives.
As always, the most useful way to think about the dollar, international investments, and gold is as parts of a complete portfolio rather than as separate, standalone investments. The value of including these assets is that they tend to behave differently than stocks and bonds, which can help smooth out a portfolio’s performance over time.
The bottom line? The dollar, international stocks, and assets such as gold can all serve different roles in balanced portfolios. During periods of uncertainty, it’s important to maintain a broader perspective on the driving factors behind these assets. Ultimately, a well-constructed portfolio remains the most reliable way to achieve long-term financial goals.
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