How to position your portfolio amid the US dollar dip

The US dollar's 10% decline against major currencies this year has prompted renewed debate regarding its status as the world’s reserve currency. Here’s how to position your portfolio and cut through the noisy headlines about America's decline and shifting world orders.

Putting the dollar's decline into perspective

The dollar has weakened approximately 10% against a broad basket of currencies since the start of the year, stemming from a mix of cyclical and structural pressures. When you zoom out, you'll see that the USD goes through distinct multi-year cycles of strength and weakness.

While we may see further fluctuations in the USD in the near-term, the dollar still commands about 60% of global foreign exchange reserves, while its closest competitor, the euro, sits at around 20%, according to the IMF. That kind of dominance doesn't disappear overnight.

The US dollar’s dip also explains why some fixed income-focused portfolios have felt more volatile recently. When the dollar weakens, it can put pressure on USD-denominated bonds – but this same dynamic can benefit other parts of a diversified portfolio.

(For a deeper dive into the longer-term trajectory of the US economy and the dollar, check out our CIO Insights: The long view on “Liberation Day”)

Examining your real dollar exposure

Foreign exchange rates are the result of how two economies interact, alongside the monetary policies of their respective central banks. While the USD has weakened, it's important to note that other central banks aren't sitting idle.

The Monetary Authority of Singapore, for example, has been lowering the gradient of the Singapore dollar's nominal effective exchange rate, the S$NEER policy curve. Essentially, this prevents the SGD from strengthening too dramatically against trading partners. This kind of currency management has helped countries maintain stability rather than being subject to volatility.

Just as central banks manage their currency strategy, you might also be reconsidering your USD exposure. There is, however, an important point to be made here: the difference between what currency your investments are priced in versus what currencies they're actually exposed to.

A Japanese equity ETF might be quoted in USD, but the underlying companies generate yen revenues tied to the Japanese economy. Even within US equity allocations, S&P 500 companies on average generate 40–50% of revenues overseas. Take Microsoft – while it's a US stock, it generates 51% of revenue internationally. Your “American” investments are closer to being bets on global growth.

Investing in a multi-currency world

So what does the dollar’s dip mean for your portfolio? First, it underscores why trying to time currency movements is generally a losing game. Even professional traders with real-time data struggle to predict President Trump's next tweet.

Currency movements can impact returns, but it works both ways. The dollar’s weakness creates a more attractive entry point for US assets – effectively putting American companies "on sale". If you've been considering increasing your US allocation, or if you're regularly investing through dollar-cost averaging, you're naturally taking advantage of these more favourable exchange rates.

What matters is that your investments benefit from both phases of the cycle rather than trying to predict which phase comes next. A weaker dollar typically supports international equities, emerging market assets, and commodities – all of which should have a place in a well-diversified portfolio.

Year-to-date, international stocks have outperformed US markets – while the S&P 500 has gained about 3%, global equities outside the US are up 16%. Gold has surged 25%, demonstrating its hedging role.

(For a strategic look ahead, check out our 2025 Mid-Year Outlook: A summer timeout?)

Diversification over de-dollarisation

When your portfolio's value fluctuates, it's natural to question your strategy. But remember: these currency cycles can be cushioned by diversification. Ultimately, the question isn't whether to shift away from the US or hedge against it – it’s whether your portfolio is positioned to capture global growth.

This means maintaining meaningful exposure while ensuring you're not overly concentrated. When the dollar strengthens, your USD-denominated holdings benefit. When it weakens, your international positions provide the upside. The US economy and markets remain central to global finance, but broader strategies – like General Investing – will capture opportunities across regions, currencies, and asset classes.