Bears claim you should fear US dollar “weakness”. They claim its 2025 plunge against the soaring euro, Swiss franc, British pound and other currencies reveal investors are increasingly fleeing US assets amid “risky” policy moves, US Federal Reserve independence fears and more. Exports of strong currency nations risk getting whacked, they say, claiming it all will slam economies, your wallet and global stocks.
Wrong. Despite common claims, developed nation currency swings predict little. Certainly not stocks’ direction. They never have. Neither is 2025’s dollar weakness – the core of current currency consternation – very unusual.
Weak or strong, currencies always scare people. When strong, they supposedly hammer corporate profits on exports or risk deflation.
A strong US dollar often triggers default fears in developing nations. They often borrow in dollars and a rising buck makes interest payments harder to meet.
Weak currencies are also feared fatal for stocks, making imports more expensive and stoking inflation. So, pick your 2025 poison.
The strong euro has surged 13 per cent surge against the dollar, the pound 7 per cent and the franc’s 14 per cent (all as of September 29). Conversely, the weak dollar has dropped 11.7 per cent, 6.7 per cent and 12 per cent against those respective currencies – and 9.8 per cent against a trade-weighted basket of currencies. All these big swings incur risk, bears cry!
The data disagrees. Consider the US for its long, accurate history: US stocks have risen in 44 of 56 years since 1968. They were split near-evenly between times the dollar strengthened (24 years) and weakened (20 years). When stocks fell, the greenback rose in six years and fell in six years. Can't see any pattern? That is because there isn’t one.
For strong currency fears, consider the euro: eurozone stocks rose in 18 years since its 1999 debut. Of those, it strengthened against a 41-nation currency basket in 12 years – the most common result. It weakened in six, the same frequency as a stronger euro coincided with falling stocks, meaning there is no pattern.
Yes, you can cherry pick brief periods where weak currency panic supposedly drove a stock market correction. You can always do that with any true random phenomenon. Yet, for each of those, I can pinpoint the exact opposite – like late 2004, when rampant weak dollar fears coincided with a steep US and global stock rally in the fourth quarter.
Even shorter term, stocks and currencies have basically no relationship. Over the past 20 years, the weekly correlation between the dollar and US stocks is minus 0.30 – very weak, given 1.00 means identical movement and minus 1.00 the exact opposite. For the euro and eurozone stocks, the figure is minus 0.02 – about as close to random as you can get.
If currencies drove the direction of stocks at all, you would see consistently much higher correlations – not these flimsy relationships.
Still, many feel like currencies should have a big impact. Sorry, but no. Investing should not be done on feelings and hunches.
Think through the logic: A weak currency may make one country’s exports more competitive overseas – but it also makes imported components costlier, and vice versa for a strong currency. Plus, major global companies are keen currency hedging experts.
Then, contrary to current social babble, there is nothing unique about 2025’s weak dollar. A glance back further than just 2025 reveals the dollar sits at levels decried as “too strong” for years. Today’s level is stronger against a trade-weighted currency basket than 57 per cent of months since 1970.
Many say the weak dollar (and non-US currencies’ relative strength) stems from broad panic over US President Donald Trump’s words and policies. This summer, Mr Trump said: “I’m a person that likes a strong dollar, but a weak dollar makes you a hell of a lot more money.”
Watch: US dollar has worst half-year since 1973
His appointment to fill a temporary Federal Reserve opening, Stephen Miran, outspokenly favours dollar weakness and eliminating the dollar’s global reserve currency status.
Meanwhile, some say Mr Trump’s trade tumult will start a sea change, pushing central bankers towards the euro, yuan, gold or Bitcoin and denting dollar dominance. Maybe someday, but currency markets are treating Mr Trump like any other US Republican president. The dollar weakened in 75 per cent of their four-year terms, strengthening on average only in their fourth years. This year’s dollar weakness through to late September exactly parallels that in Mr Trump’s first term over the same span. This is not unusual.
Dollar weakness fears – or any worries over currency moves, up or down – overlook a basic truth: Currencies trade in pairs. Developed nations' currencies even out in the long term into what resemble long, large sine waves – and they will this time, too.
So, let others fret dollar weakness (and non-US currencies’ strength). Currency wiggles are normal. Do not worry yourself based on them.
