The value of the US dollar has fallen by around 13% against a basket of major currencies since Donald Trump returned to the White House in January 2025 for his second term as US president, plumbing a four-year low.
While very recently the dollar has reversed a small portion of those losses, that longer-term trend has major implications for individuals in the UK with exposure to America-related shares and funds. That’s because dollar weakness erodes the value of US assets for foreign investors.
For example, a lot of people have exposure to the US stock market via an S&P 500 tracker fund. Since Trump’s second term began, the S&P 500 has returned 17.9% in US dollar-terms. However, many UK investors will hold an S&P 500 tracker fund in sterling – and the return in this currency is only 5.5% over the same period.
How does the dollar affect global asset prices?
US dollar weakness is arguably a policy goal of the US administration, which has sought to increase competitiveness of US goods and reduce imports from countries such as China.
The dollar doesn’t just function as money for Americans; it also acts as the primary currency for the world’s financial infrastructure, which is why it is often referred to as the global reserve currency.
Central banks hold around 60% of their currency reserves in US dollars, albeit down from 70% a quarter of a century ago. Such institutions have been diversifying their relatively high dollar exposures to manage risk amid heightened geopolitical uncertainty, as illustrated by greater flows into gold.
US dollar winners
Commodities and emerging markets are the key areas to watch when the US dollar falls in value.
Just over half of global trade is invoiced in US dollars while precious and industrial metals and soft commodities like sugar and cocoa are priced in dollars. When the US dollar weakens these commodities get cheaper for non-US countries to import.
Gold prices are especially sensitive to the dollar and often move in the opposite direction. US dollar weakness has certainly had some effect on recent strength in the yellow metal.
Many emerging markets borrow in dollars because it more liquid and stable than local currencies. A weaker greenback often has the effect of boosting lowering financing costs and boosting growth.
It is notable that the recent outperformance emerging market stock markets has coincided with dollar weakness. The MSCI Emerging Markets index recently broken out to a new all-time high, to finally surpass the peaks reached in 2021 and 2007.
UK investors typically gain exposure to emerging markets through funds as buying individual stocks can be difficult in this part of the investment market. It’s important to note that emerging markets come with a range of risks, including politics, currency movements, and corporate governance issues.
US dollar losers
For US multinationals, a strong dollar makes their overseas earnings worth less when converted back to dollars which can drag down the S&P 500's overall performance. It also means they are potentially less competitive as strength in US currency makes their goods and services more expensive for overseas buyers. Domestic-facing American businesses are less exposed to currency swings.
With around three-quarters of FTSE 100 revenues generated overseas and a large chunk in US dollars from the likes of the big oil companies, miners, healthcare and consumer staples, dollar weakness has been a drag on company earnings when translated back into sterling.
This dynamic means the FTSE 100 is often a beneficiary of a strong dollar and suffers when the dollar falls. However, the strength of gold and silver in recent months has dampened the weak dollar effect on the FTSE 100, given the index has several large precious metal miners.
Martin Gamble: Shares and Markets Writer
Martin Gamble is Shares and Markets writer at AJ Bell. He was previously the Education Editor of Shares Magazine. He has been with the business since 2019.
Martin graduated from the University of Kent in...
