What Every Advisor Should Know About the US Dollar—and Why It Matters for Your Clients
- Modelist
- Apr 15
- 3 min read
The US dollar isn’t just a currency—it’s a global anchor that touches everything from trade policy to treasury yields to your clients' international investments. For financial advisors, having a solid grasp of how the dollar shapes the investment world can help in constructing smarter portfolios and delivering clear guidance during uncertain times.
How the Dollar Impacts Trade: The Sector Story
Keep in mind that a trade deficit or surplus simply reflects whether a country consumes more than it saves, or vice versa—it’s not a direct measure of economic strength. The value of the U.S. dollar can influence this balance. A weaker dollar makes U.S. exports more affordable to foreign buyers and imports more expensive, which can help reduce the trade deficit and support sectors that compete globally.
Sectors that typically benefit when the dollar weakens:
Manufacturing (e.g., autos, machinery, aerospace)
Agriculture (e.g., grain, livestock)
Energy producers
Tech hardware exporters
Sectors that may struggle:
Retailers reliant on imports
Domestic transportation companies (rising fuel costs)
U.S. firms importing raw materials
Multinationals like Boeing and Caterpillar often see a tailwind, as foreign sales translate into more dollars.
The Reserve Currency Advantage (and the Risks)
Roughly 57% of global reserves are held in U.S. dollars. This makes the dollar the world’s reserve currency—a role that gives the U.S. what economists call an “exorbitant privilege.”
That privilege allows us to:
Borrow at lower rates, since global trade is largely conducted in U.S. dollars
Maintain constant global demand for U.S. financial assets
Run larger deficits without immediate pressure, thanks to sustained foreign demand
But this status isn’t guaranteed. Rising deficits, fiscal instability, political volatility, or a loss of confidence in the rule of law—or in the U.S. maintaining strong global alliances—could erode trust in the dollar. If other countries gradually shift reserves toward alternatives like the euro, U.S. borrowing costs could rise—potentially at the worst possible time.
Treasury Yields and Mortgage Markets: Why Foreign Demand Matters
About 30% of all U.S. Treasuries are held by foreign investors—mostly central banks. If that demand weakens, Treasury yields must rise to attract new buyers. And when yields rise:
Government interest costs increase (already nearing $1T/year)
Mortgage rates rise, reducing affordability and housing demand
Higher deficits create a negative feedback loop with rising rates
Every 1% increase in average interest rates adds ~$280 billion in annual federal interest payments. That’s a huge lever with big implications.
Currency Effect on International Investments
When the dollar weakens, foreign investments gain an automatic edge. Even if local markets are flat, the currency exchange boosts USD returns.
Dollar weakness boosts:
Foreign stock and bond returns (after conversion)
Value of foreign corporate earnings
Appeal of unhedged international exposure
Currency-hedged strategies remove this effect—potentially reducing both upside and downside, but at a cost.
What to Own When the Dollar Weakens
Here are a few asset classes that advisors often turn to during periods of dollar stress:
U.S.-based assets:
TIPS – protect against inflation
Gold and commodities – traditionally inverse to the dollar
Multinational equities – benefit from stronger foreign earnings
Real estate and infrastructure – real assets that often hold value
International ideas:
Swiss franc and Singapore dollar funds – historically strong during dollar slides
Global Developed bonds – low correlation safehavens like European bonds
Gold ETFs in non-USD terms – diversify both currency and asset class
Strategy for Advisors: Don’t Try to Time the Dollar
Currency moves are hard to predict. Instead of guessing, build resilience:
Include international equity and fixed income exposure
Choose unhedged positions where appropriate for added currency diversification
Focus on sectors with pricing power or global revenue sources
Dollar diversification is not a niche play—it’s a risk management tool embedded in a well-balanced portfolio.
Final Thoughts
The US dollar quietly drives a huge share of your clients’ investment outcomes—especially when it moves sharply. But advisors don’t need to be currency traders to build smart portfolios. By understanding how dollar strength or weakness impacts trade, interest rates, and international returns, you can help clients stay on course—even when the global winds shift.
Make the most of these insights using Modelist. We create customized investment models for the fiduciary financial advisor. Get in touch with us at hello@modelist.me for a personal consultation.
Modelist Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
