The US dollar spent 2025 in retreat, falling roughly 9% on the dollar index in its weakest year in some time. And while 2026 has been far choppier — the index has swung around the 98–103 zone rather than trending in a straight line — that broad turn has reshaped returns for investors almost everywhere. Currency is the quietest driver of a global portfolio, and one of the most powerful.

For an investor holding assets across several countries, the dollar is rarely just background noise. It is the denominator against which a great deal of the world’s wealth is measured, and when it moves, the value of everything priced against it moves too.

~9%
Approx. dollar-index decline in 2025
~96
Multi-year low reached in early 2026
Mid-90s
Rough consensus year-end 2026 target

A two-year turn

After a long stretch of dollar strength, 2025 marked a clear inflection. The index fell sharply through the year and touched a multi-year low in early 2026, before staging a choppy, range-bound 2026 as shifting rate expectations and periodic bouts of safe-haven demand pulled it in both directions. Most major banks lean toward mild further softening into the mid-90s by year-end — but that view is far from unanimous, and the path has been anything but smooth.

The dollar is the denominator for every cross-asset trade.

Why it matters to every portfolio

A weaker dollar tends to work in favour of several things a globally diversified investor is likely to hold:

  • Emerging-market assets. When the dollar softens, capital often rotates toward emerging markets, and their currencies and equities tend to benefit.
  • Commodities. Gold and other commodities are priced in dollars, so a cheaper dollar generally supports their prices.
  • Foreign holdings. For an investor whose home currency strengthens against the dollar, unhedged US assets are worth less in local terms — and vice versa.

The direction of the dollar, in other words, quietly tilts the returns of a portfolio spread across regions and asset classes — often more than any single stock pick.

The case against a one-way bet

It would be a mistake to treat a softer dollar as a certainty. Sticky inflation and a Federal Reserve that stays on hold — or even raises rates — can firm the dollar again by keeping US yields attractive. A fresh energy shock or a bout of market stress can send investors rushing back into the dollar as a haven, as happened more than once in 2026. This is precisely why the index has chopped sideways rather than sliding cleanly.

What it means for you

The lesson is not to try to forecast exchange rates — a game that humbles professionals. It is to recognise that currency is a real and often overlooked driver of returns, and to hold a portfolio diversified across regions and currencies so that no single move, in either direction, can dominate the outcome. A globally balanced portfolio is, among other things, a way of not betting the house on the dollar.