Why I’m Not Worried About a Weaker Dollar – A Wealth of Common Sense

When you see such a big move in something as important as the dollar, people get nervous. Just look at the headlines:

Until they crashed last week, we also saw the price of gold and silver go parabolic.

The concern here is that all our government spending, high deficits and trade war policies are causing a retreat from the dollar. This is the demeaning trade everyone is talking about.

Anything is possible, but for now I’m not too worried about the dollar. This is why:

Inflation is under control. The average long-term inflation rate in the United States over the past hundred years is 3.5%. As of October 2023, we are now below that figure:

We had the initial spike in inflation due to a combination of government spending, supply chain shocks and pandemic weirdness, but now inflation has fallen below 3%.

This is not the hyperinflation scenario the fear mongers have warned about.

Interest rates are not increasing. The yield curve is steepening, but that is a more normal environment for bond yields, where long-term rates are higher than short-term rates.

The 10-year Treasury has been tied to a bandwidth for a few years. If confidence in America were to decline, you would expect interest rates to rise as investors would demand a premium to invest in government bonds.

That doesn’t happen.

The stock market remains near all-time highs. Last year we had 39 new all-time highs for the S&P 500:

There are already four new highs in 2026.

Investors still have a lot of confidence in the American financial markets.

Foreigners are still investing. Goldman Sachs shows that foreigners slowed their purchases of U.S. assets in April as the events of Liberation Day unfolded:

But then they picked up where they left off and bought U.S. financial assets.

We still have the largest, most liquid financial markets.

Zoom out: currencies fluctuate. This is the dollar versus a basket of other currencies going back to the early 1970s:

There has been a lot of volatility in the dollar over the past five decades, but the net result is that it remains essentially unchanged over the long term. All ups and downs cancel each other out.

In fact, not so long ago the dollar was just lower than it is now. It has been strong since the end of the Great Financial Crisis. These things are cyclical.

Don’t get me wrong: there are legitimate reasons why the dollar is on sale.

Countries around the world are hoarding stuff – gold, raw materials, key supply chain materials, etc. – because of the trade war. That certainly has an impact on the dollar and is a major reason why it has fallen.

But what is the alternative to the dollar?

Most of the world’s debt is still denominated in dollars. Commodities are priced in dollars. Government bonds remain one of the largest and most liquid bond markets in the world. The US stock market represents ~65% of the world’s total market capitalization.

This isn’t exactly a convincing endorsement, but there are no clear alternatives at this point. Gold and bitcoin are far too volatile. The yen, the euro and the yuan are not up to the challenge.

I can imagine a situation where the dollar slowly but surely loses its strong position, but it is difficult to imagine this happening overnight.

And if you’re really concerned about the dollar’s place in the global hierarchy, buy international stocks. Buy hard assets. Buy real estate.

But don’t panic every time the dollar rises or falls.

These things are cyclical.

Further reading:
How to Diversify Against the Dollar