- President Trump continues to talk down (or at least not defend) the dollar
- This is in keeping with the White House’s plan to stoke the US economy
- Currency weakness may dampen the attractiveness of US assets
- By contrast, both commodities and emerging markets have done well during prior periods of dollar declines
“President Trump’s indifference to a lower dollar is entirely in keeping with his administration’s apparent plan to talk (or force) down not only the currency, but oil prices and interest rates, all while cutting personal taxes and deregulating in a bid to stoke US economic growth and reduce America’s uncomfortable debt-to-GDP ratio,” says AJ Bell investment director Russ Mould.
“It remains to be seen whether the plan succeeds, but a soggy dollar could decrease the attractiveness of US assets to investors and boost the profile of two portfolio options which have, in the past, shown a liking for a weaker greenback – namely commodities and emerging markets.
“The dollar has consistently headed south since Trump’s second inauguration last year, and it now stands 14% below the high of 110 it reached in January 2025, using the trade-weighted DXY index as benchmark.
Source: LSEG Refinitiv data
“Thus far, this is a pretty good mirror image of Trump’s first presidency.
“An initial surge in the dollar during Trump’s first presidency fizzled quickly as he began to badger the US Federal Reserve for interest rate cuts. His second term is now raising fresh questions about the Fed’s independence and also the trajectory of US interest rates, as Trump seems keen to hand pick a successor to current chair Jay Powell who will bend to his calls for looser monetary policy.
Source: LSEG Refinitiv data
“Dollar weakness erodes the value of US assets for foreign investors. Political pressure on a central bank, not to mention tariffs and a strident foreign policy, may be other potential considerations when portfolio builders assess the merits of the greenback, as well as American shares and bonds, especially when equities look expensive relative to their history in any metric that you care to use.
“It will therefore be interesting to see if any sustained dollar weakness persuades investors that a little portfolio diversification is in order, away from US equities and towards two asset classes in particular which have not enjoyed the same sort of favour as the Dow Jones Industrials, S&P 500 and Nasdaq stock indices in the past decade and more
“They are commodities and emerging market equities. History suggests that both do well when the dollar is weak and while the past is absolutely no guarantee for the future it does seem as if the weaker buck is already fuelling greater interest in these portfolio options.
“Gold, silver, tin, copper and platinum all stand at record or multi-year highs already and the Bloomberg Spot Commodities index is dashing back towards the all-time peak reached in summer 2022, even though the oil price remains relatively depressed.
“Periods of dollar weakness have historically seen strength in raw material prices, which are usually priced in the US currency. A weaker buck makes commodities cheaper for non-dollar users in their own local currencies and thus lifts demand. It also may persuade financial investors to seek out perceived stores of value, where supply growth is limited relative to money supply growth, in times where inflation or loose monetary policy are reasons behind the dollar’s decline.
Source: LSEG Refinitiv data
“Meanwhile, the MSCI Emerging Markets index has recently broken out to a new all-time high, to finally surpass the peaks reached in 2021 and 2007.
“A weaker dollar is traditionally seen as a boost for emerging markets, as it makes it easier for those nations who borrow in dollars to service their debts, and use the cash that would have been spent on interest for more productive, growth-oriented purposes.
Source: LSEG Refinitiv data
“This could prove particularly interesting to some investors, given how the MSCI Emerging Markets benchmark trades at all-time relative lows against America’s S&P 500. Sustained dollar softness could conceivably prompt some switching from one to the other.
Source: LSEG Refinitiv data
“Emerging markets are not homogenous by any means, and they come with a range of risks, including politics, currency movements, corporate governance and how easy it is (or otherwise) to buy and sell on local exchanges. Investors could be forgiven for seeking broad-brush exposure via actively or passively managed funds, which will provide access to a basket of countries and industry sectors in either equities or bonds, or both, rather than tackling the nitty-gritty of individual stock selection.
“But it is possible that at least some of those not-so-hidden dangers are already factored into EM valuations. The MSCI Asia-Pacific ex-Japan index is currently benefiting from the technology exposure provided by Taiwan’s TSMC, Korea’s Samsung Electronics and SK Hynix and the AI magic dust associated with Chinese internet giants Alibaba and Tencent. The index is hitting new all-time highs, but its relative rating compared to the S&P 500 is near historic lows.
“Eastern Europe may just be too tricky for some, given the proximity of the war in Ukraine and Russia’s fall from grace in 2022 when it was sanctioned in the wake of the invasion of its neighbour.
“Meanwhile, Latin America has a tiny weighting in the All-World indices, with Brazil, Chile, Colombia and Mexico chipping in barely 1% of the benchmark’s capitalisation. But the MSCI index is rallying, helped by a rightward shift in politics in Argentina, Peru and Bolivia, scope for interest cuts as reforms put a lid on inflation, and strong industrial and precious metal prices.”
