a close up of a one dollar bill by Adam Nir courtesy of Unsplash.

RCM Managed Asset Portfolio: Dollar Value and Its Effect on Investments

Christopher Chiu |
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Finance

RCM Managed Asset Portfolio

By Christopher Chiu, CFA

February 2026

 

Dollar Value and Its Effect on Investments

Recently, it has been suggested that the weakening dollar indicates the long-term weakening and indebtedness of the US economy. For example, in his January 2025 essay, “How Countries Go Broke,” Ray Dalio has said,

[T]he US dollar was and still is the dominant reserve currency that most transactions were and are denominated in and most savings are in….[It is now] encountering [the] Big Debt cycle…and  [investors] will likely experience serious consequences from those [debts] in the US and the US dollar assets and liabilities.

There is a lot to unpack in this excerpt. But broadly speaking, I will try to explain that a weaker or stronger dollar (1) results from the effect of interest rates on external and internal actors and that (2) a country’s indebtedness will eventually have an effect on its interest rates and its currency.

First, for the external actors. Currencies generally move with interest rates. When interest rates are going lower, the currency is less sought after by foreigners. This is because with lower interest rates there is less desire by foreigners to invest in the lower rates. And when rates are higher there is a greater desire to invest and therefore more demand for use of the currency. This is an example of interest rates’ influence on external actors of a currency.

There are also internal forces that may weaken a currency. This may occur when there is too much money in circulation, whether by lowering rates excessively or by excessive fiscal stimulus, which results in an abundance of money in the financial system and therefore a weaker currency. A historical example of this occurred during the age of the Spanish empire when the conquistadors, having discovered gold and silver in the New World, brought it back to Spain where it was used for coinage. This rapid influx of money caused inflation in the Spanish economy with too much money chasing too few goods. A more recent example of this phenomenon was the excessive fiscal stimulus during Covid.

Another internal force that may weaken a currency is the credit quality of the government that prints it. There is the growing narrative that the US budget deficit and the government debt it causes is no longer sustainable over the long term. This over-indebtedness can make foreign and domestic investors less enthusiastic about a government’s debt and its ability to pay back the money borrowed. While the US Government can print more money for any debt it finds hard to repay, the doubt from would-be bondholders is whether the government can pay back the debt without causing inflationary effects. Bondholders will be less likely to pay a high price if the result of their lending causes their bonds to be less valuable in inflationary terms.

 

A Weaker Dollar on Investments

If there is a weaker dollar, it may have a number of adverse effects for US investors. Some of these factors have been in play recently.

  • Some foreign assets will gain in value relative to domestic assets. This had been the case in the equity markets in 2025 as foreign large caps have outperformed US large caps. This may have been caused in part by a weaker dollar, as investors sought assets in a currency that would not lose value.
  • Long-term bond yields may not decrease as a result of central bank easing of rates. We see this in Japan because of over indebtedness. Since 2024, long-term Japanese government bond yields have been on the rise. There is a suggestion that this will also happen with the US treasury bond market, that despite lowering the short-term Fed Funds rate the long-term bond rate will not be affected but will continue to trade based on its perception of the government’s over-indebtedness and its inability to repay without spurring inflation. Jeffrey Gundlach of DoubleLine is one of the proponents of this view, as is Dalio, who we excerpted above.
  • Commodities and precious metals will increase in value. Since the Fed began lowering rates, this weakened dollar has coincided with the increase in value of precious metals, notably gold. This may partly be explained by the fact that before the dollar ever existed there was gold and that gold is perceived to hold value when all other currencies lose their value.

Keep Some Perspective

However, it remains to be seen whether these views will play out as bond vigilantes have suggested. I offer one last picture of the value of the dollar relative to other currencies so that we might keep some perspective.