Ways to invest when the dollar is depreciating
Ways to invest when the dollar is depreciating
After a strong fourth quarter, unpredictable U.S. policy decisions, a growing trade war and a softening macroeconomic environment have weighed on the U.S. dollar so far in 2025, sending the U.S. Dollar Index down 4.4% through March 14.
The dollar tends to outperform when the economy is booming and the Federal Reserve is raising interest rates. However, the bond market is pricing in three more Federal Reserve interest rate cuts in 2025. Fortunately for investors, a weaker dollar could create significant investment opportunities. Here are seven ways to invest in a falling dollar:
U.S. companies generating international sales.
Commodities.
Gold.
Cryptocurrencies.
Emerging markets.
International stocks.
International currency ETFs.
The dollar tends to outperform when the economy is booming and the Federal Reserve is raising interest rates. However, the bond market is pricing in three more Federal Reserve interest rate cuts in 2025. Fortunately for investors, a weaker dollar could create significant investment opportunities. Here are seven ways to invest in a falling dollar:
U.S. companies generating international sales.
Commodities.
Gold.
Cryptocurrencies.
Emerging markets.
International stocks.
International currency ETFs.
Re: Ways to invest when the dollar is depreciating
U.S. Companies Generating International Sales
A weaker dollar can be good news for U.S. companies with international sales.
When the dollar is strong, companies generating international sales effectively earn fewer dollars and generate lower earnings than expected, as foreign sales are converted into U.S. dollars at unfavorable exchange rates. However, a weaker dollar means goods and services being purchased with dollars become less expensive to international consumers.
"U.S. exporters may benefit the most," says Derek Horstmeyer, professor of finance at George Mason University School of Business.
"Included in this is any tech company that does a lot of their sales in Europe or Asia, or any company that owns significant subsidiaries in other countries (like Aflac, for instance, where most of their operations are in Japan)."
In addition to Aflac Inc. (ticker: AFL), Qualcomm Inc. (QCOM) and Schlumberger Ltd. (SLB) are two other examples of U.S. stocks that generate a sizable portion of total revenue overseas.
A weaker dollar can be good news for U.S. companies with international sales.
When the dollar is strong, companies generating international sales effectively earn fewer dollars and generate lower earnings than expected, as foreign sales are converted into U.S. dollars at unfavorable exchange rates. However, a weaker dollar means goods and services being purchased with dollars become less expensive to international consumers.
"U.S. exporters may benefit the most," says Derek Horstmeyer, professor of finance at George Mason University School of Business.
"Included in this is any tech company that does a lot of their sales in Europe or Asia, or any company that owns significant subsidiaries in other countries (like Aflac, for instance, where most of their operations are in Japan)."
In addition to Aflac Inc. (ticker: AFL), Qualcomm Inc. (QCOM) and Schlumberger Ltd. (SLB) are two other examples of U.S. stocks that generate a sizable portion of total revenue overseas.
Re: Ways to invest when the dollar is depreciating
Commodities
Since most commodities traded in international markets are priced in dollars, a weaker dollar means higher commodity prices. As the dollar falls in value, it takes more dollars to purchase a commodity, driving the commodity's price higher. Likewise, dollar-based commodity prices must rise to match the effective price of global competitors pricing commodities in other currencies.
Crude oil prices have historically had a particularly negative correlation with the U.S. Dollar Index.
Investors looking to bet on commodities in 2025 can buy popular commodities funds, such as the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) and the United States Oil Fund (USO).
Since most commodities traded in international markets are priced in dollars, a weaker dollar means higher commodity prices. As the dollar falls in value, it takes more dollars to purchase a commodity, driving the commodity's price higher. Likewise, dollar-based commodity prices must rise to match the effective price of global competitors pricing commodities in other currencies.
Crude oil prices have historically had a particularly negative correlation with the U.S. Dollar Index.
Investors looking to bet on commodities in 2025 can buy popular commodities funds, such as the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) and the United States Oil Fund (USO).
Re: Ways to invest when the dollar is depreciating
Gold
Like commodities, gold is generally priced in dollars. The dollar is no longer backed by physical gold, but the value of the dollar is one of many factors that impacts gold's value. Gold prices have soared in recent years as investors use the precious metal to hedge against inflation. However, investors also use gold as a stable store of value during periods of currency volatility.
Michael Martin, vice president of market strategy at TradingBlock, says it's no surprise gold has outperformed the S&P 500 in the current environment.
"Persistent inflation and a weaker dollar have played a big role," Martin says. "Since gold is priced in dollars, a falling dollar makes it more attractive to foreign investors and central banks, driving up demand."
To avoid losses tied to a declining dollar, investors can buy shares of the popular SPDR Gold Trust (GLD) or the more volatile VanEck Gold Miners ETF (GDX).
Like commodities, gold is generally priced in dollars. The dollar is no longer backed by physical gold, but the value of the dollar is one of many factors that impacts gold's value. Gold prices have soared in recent years as investors use the precious metal to hedge against inflation. However, investors also use gold as a stable store of value during periods of currency volatility.
Michael Martin, vice president of market strategy at TradingBlock, says it's no surprise gold has outperformed the S&P 500 in the current environment.
"Persistent inflation and a weaker dollar have played a big role," Martin says. "Since gold is priced in dollars, a falling dollar makes it more attractive to foreign investors and central banks, driving up demand."
To avoid losses tied to a declining dollar, investors can buy shares of the popular SPDR Gold Trust (GLD) or the more volatile VanEck Gold Miners ETF (GDX).
Re: Ways to invest when the dollar is depreciating
Cryptocurrencies
Investors with the stomach for extreme volatility can invest in Bitcoin (BTC), Ethereum (ETH) and other popular cryptocurrencies to play a weaker dollar. The price of cryptocurrencies is typically denominated in dollars, and many investors see Bitcoin and other cryptos as digital versions of currencies or commodities. In the long term, Bitcoin has been an exceptionally good investment, but its extreme volatility is not for the faint of heart. In fact, Bitcoin has not had a calendar year in which it gained or lost less than 60% in value since 2015.
Investors with the stomach for extreme volatility can invest in Bitcoin (BTC), Ethereum (ETH) and other popular cryptocurrencies to play a weaker dollar. The price of cryptocurrencies is typically denominated in dollars, and many investors see Bitcoin and other cryptos as digital versions of currencies or commodities. In the long term, Bitcoin has been an exceptionally good investment, but its extreme volatility is not for the faint of heart. In fact, Bitcoin has not had a calendar year in which it gained or lost less than 60% in value since 2015.
Re: Ways to invest when the dollar is depreciating
Emerging Markets
In addition to U.S. stocks doing business overseas, international companies with relatively low exposure to the U.S. market also benefit from a weaker dollar.
Investors who want to take an aggressive approach to investing in international stocks can target emerging markets, such as China, India and Brazil. The Vanguard FTSE Emerging Markets ETF (VWO) is one of the largest and lowest-cost emerging-market exchange-traded funds in the market.
"In a weakening U.S. dollar environment, I also recommend emerging-market local currency debt for those seeking higher income that can tolerate a little volatility," says Vince DeCrow, chief operating officer at RISE Investments.
DeCrow says the strong dollar has created buying opportunities in this area of the market in recent years.
"Emerging-market local currency debt comes with risks, yet investors are being compensated for the risk with a double-digit yield and strong capital appreciation potential should the U.S. dollar continue to weaken," he says.
In addition to U.S. stocks doing business overseas, international companies with relatively low exposure to the U.S. market also benefit from a weaker dollar.
Investors who want to take an aggressive approach to investing in international stocks can target emerging markets, such as China, India and Brazil. The Vanguard FTSE Emerging Markets ETF (VWO) is one of the largest and lowest-cost emerging-market exchange-traded funds in the market.
"In a weakening U.S. dollar environment, I also recommend emerging-market local currency debt for those seeking higher income that can tolerate a little volatility," says Vince DeCrow, chief operating officer at RISE Investments.
DeCrow says the strong dollar has created buying opportunities in this area of the market in recent years.
"Emerging-market local currency debt comes with risks, yet investors are being compensated for the risk with a double-digit yield and strong capital appreciation potential should the U.S. dollar continue to weaken," he says.
Re: Ways to invest when the dollar is depreciating
International Stocks
Investors can mitigate risks associated with high-growth emerging markets by focusing on developed markets, such as Europe, Japan and South Korea. In addition to protecting against a weaker dollar, international stocks can diversify your investment portfolio away from U.S. stocks and the U.S. economy.
Developed markets won't provide the same type of growth as emerging markets, but their economies are typically more stable and reliable. The Vanguard FTSE Developed Markets ETF (VEA) is a popular fund for diversified exposure to international developed markets. The fund's top holdings include stocks like Nestlé SA (OTC: NSRGY), ASML Holding NV (ASML) and SAP SE (SAP).
Investors can mitigate risks associated with high-growth emerging markets by focusing on developed markets, such as Europe, Japan and South Korea. In addition to protecting against a weaker dollar, international stocks can diversify your investment portfolio away from U.S. stocks and the U.S. economy.
Developed markets won't provide the same type of growth as emerging markets, but their economies are typically more stable and reliable. The Vanguard FTSE Developed Markets ETF (VEA) is a popular fund for diversified exposure to international developed markets. The fund's top holdings include stocks like Nestlé SA (OTC: NSRGY), ASML Holding NV (ASML) and SAP SE (SAP).
Re: Ways to invest when the dollar is depreciating
International Currency ETFs
One of the most straightforward ways to profit from a weaker dollar is to invest in other fiat currencies. Foreign exchange traders can make bets on currency pairs directly, but there are also publicly traded trusts and funds that allow investors to buy and sell international currencies just like stocks. For example, the Invesco CurrencyShares Euro Trust (FXE) is an easy way to bet on the euro, while the Invesco CurrencyShares Japanese Yen Trust (FXY) provides exposure to the yen.
However, currency investors should understand that these pairs are a zero-sum game. These currencies will gain value only during periods of dollar weakness and will lose an equal and opposite amount of value during periods of dollar strength.
One of the most straightforward ways to profit from a weaker dollar is to invest in other fiat currencies. Foreign exchange traders can make bets on currency pairs directly, but there are also publicly traded trusts and funds that allow investors to buy and sell international currencies just like stocks. For example, the Invesco CurrencyShares Euro Trust (FXE) is an easy way to bet on the euro, while the Invesco CurrencyShares Japanese Yen Trust (FXY) provides exposure to the yen.
However, currency investors should understand that these pairs are a zero-sum game. These currencies will gain value only during periods of dollar weakness and will lose an equal and opposite amount of value during periods of dollar strength.