Is the Dollar Really Falling?
Although many reports discuss the declining value of the dollar and its potential causes, few highlight its current position. Indeed, the dollar has decreased by 8.6% since the beginning of the year (as shown in Exhibit 1, left chart) against a broad trade-weighted currency index. While this may seem significant, a broader perspective (Exhibit 1, right chart) reveals that the drop isn’t as alarming as the headlines suggest.
Exhibit 1: Context of the US Dollar’s Recent Decline
Source: Macrobond, as of 5/29/2025. US Dollar Index, daily, 1/1/2005 – 5/23/2025.
Currently, the US dollar is stronger than it has been for much of the past two decades. This recent volatility appears to resemble typical fluctuations in the currency market rather than a genuine crash. But what implications does this have for investors? Will a significant drop in the dollar’s value affect US stock returns? We believe it won’t.
Impact of a Weak Dollar on US Stocks
The relationship between the dollar’s value and market performance has long been debated, regardless of the dollar’s strength. A weaker dollar can lead to higher costs for domestic importers but might boost demand for US exports. Depending on the specific sector, a declining dollar could either enhance or diminish corporate earnings and stock returns.
However, our findings indicate that a weak dollar does not reliably predict US stock market performance. Exhibit 2 illustrates the S&P 500’s performance relative to the dollar over the past 50 years. Even though US stocks and the dollar have occasionally moved in tandem, a definitive relationship is absent.
Exhibit 2: The S&P 500 Compared to the Trade-Weighted US Dollar
Source: Finaeon, Inc. and FactSet, as of 5/5/2025. Trade-Weighted US Dollar Index, S&P 500 total return from 12/31/1970 – 4/30/2025.
Global Stocks Remain Unaffected by Dollar Fluctuations
International markets have shown similar indifference to dollar volatility—likely due to their close correlation with US stocks. Exhibit 3 illustrates the performance of global markets during different dollar scenarios. When the dollar increased, stocks rose 39% of the time, and when it decreased, stocks still lifted 37% of the time. Essentially, the probability of stock increases remained consistent regardless of dollar fluctuations, confirming the disconnect between the dollar and stock performance.
Exhibit 3: Performance of Global Stocks Relative to the Dollar
Source: Finaeon, Inc. and FactSet, as of 5/5/2025. Trade-Weighted US Dollar Index, MSCI World total return from 12/31/1970 – 12/31/2024.
Despite negative headlines regarding the dollar’s recent decline, such fluctuations are typical in currency markets. We view the global stock market as too intricate for any single indicator to consistently predict trends. Investors are encouraged to look beyond short-term currency changes and stay focused on their long-term financial objectives.
Explore Further
This article examined the relationship—or lack thereof—between the US dollar and stock performance. For more insights, you can watch Ken Fisher’s latest video, “Fisher Investments Reviews the Relationship Between Stocks and the US Dollar.”
