Kelly Jernigan J.D., CFA® Senior Vice President, Director, Family Wealth Strategy
Over the past 15 years, the U.S. has experienced a dynamic and responsive economy. The robust growth of
technology, with the surge in social media and artificial intelligence (AI), has been the engine of the U.S. economy. The U.S. remains dominant in technology with companies such as Apple, Microsoft, and recently NVIDIA providing tremendous growth.
The U.S. dollar had a strong run beginning in 2008, appreciating 40% before it began to decline at the start of 2025. The value of the dollar tends to increase in value by attracting overseas investments both when the U.S. economy is strong and when there is financial crisis. Demand for the dollar has weakened with the recent uncertainty surrounding global trade, a slowing U.S. economy, and an increasing U.S. national debt. Despite headwinds, the dollar seems to remain a safe-haven currency, but the decline in value may still have wide-ranging impacts for investors.
Weak-dollar policy favored by administration
After the April 2 tariff announcements the decline of the dollar accelerated further. A weaker dollar would benefit U.S. exporters as U.S. goods become cheaper overseas. It would also help U.S. companies that earn a large part of their earnings overseas, such as Apple and Microsoft. When products such as the iPhone are sold internationally, the weaker dollar means they are priced more competitively.
U.S. Dollar versus Major Currencies
Dollar’s robust strength declining
Source: Bloomberg, Commerce Trust
Many commodities that trade on international markets are priced in U.S. dollars, including oil and natural gas, agricultural products, and metals. A weaker dollar could boost demand and prices for commodities, which benefits U.S. producers.
While a weaker dollar benefits U.S. exporters, it causes the price of imported goods to be more expensive. And the U.S. remains a net importer of goods. As a result, there is a lower demand for U.S. dollars. When countries outside of the U.S. trade directly with one another, they are avoiding the burden of doing business in the U.S. dollar and utilizing other currencies. This shift is partly due to concerns about the dollar’s declining value and the unpredictability of U.S. trade policy.
U.S. dollar not following typical trends
The U.S. dollar tends to increase in value both when the U.S. economy is strong and when there is a global financial crisis. It tends to decrease in value when the U.S. economy is underperforming the global economy. This trend is known as the U.S. dollar smile.
This year we have seen the dollar decline in value compared to other currencies. If the April 2 tariff announcement by the Trump Administration was an economic crisis, according to the dollar smile theory, the U.S. dollar should have increased in value when the market was surprised by the tariff increases. Instead, it declined.
U.S. versus Europe, Australasia, and Far East (EAFE)
Domestic and international return compared to U.S. dollar value
Source: Bloomberg, Commerce Trust
While the announced tariffs could be viewed as an economic crisis, it could also decrease global demand for the dollar. International corporations may prefer to be paid in currencies other than the dollar due to its declining value as well as uncertain U.S. trade policy. As more investors turn to international investments, there is less investment in the U.S., which further weakens demand for the dollar.
Tariffs raise prices on overseas goods
For investors, there are both positive and negative impacts from a weaker dollar. On the positive side, U.S. investors holding foreign assets may see the value of those assets increase when the foreign currency is converted back into dollars. U.S. companies that have significant earnings overseas may also benefit from a weaker dollar. Their earnings in foreign currency converts into more dollars, which boosts revenue margins and profits.
On the negative side, U.S. consumers feel the higher cost of overseas goods impacted by both tariffs and diminished dollar value. It takes more dollars to buy the same amount of goods overseas. Higher costs can erode returns on fixed income investments and may impact consumer spending. Traveling or investing overseas will also be more expensive.
The role of U.S. debt and the dollar as a safe-haven currency
To finance the budget deficit, the U.S. government issues Treasuries. Over time, growing deficits could undermine confidence in the U.S. government’s ability to meet its debt obligations, resulting in a lower demand for Treasuries and a weaker dollar. In the short term, if Treasuries have higher interest rates compared to overseas government bonds, Treasuries will attract foreign capital, and the dollar will strengthen in value.
Although it has declined in value, the U.S. dollar still maintains its role as a safe-haven currency. Countries with safe-haven currencies share common traits, including political stability, strong and resilient economies, deep and liquid financial markets, and stable inflationary environments. What may weaken the dollar’s role as a safe haven is if the U.S. is no longer seen as a strong global economy and our budget deficits balloon out of control.
Your Commerce Trust team
The potential impacts on an investment portfolio that contains exposure to overseas stocks and bonds are complex. Commerce Trust is here to help. As part of your wealth management team, your portfolio manager can discuss how international assets could fit within the overall asset allocation of your investment portfolio.
The Chartered Financial Analyst® (CFA®) Charter is a designation granted by CFA Institute to individuals who have satisfied certain requirements, including
completion of the CFA Program and required years of acceptable work experience. Registered marks are the property of CFA Institute.
Past performance is no guarantee of future results, and the opinions and other information in the commentary are as of July 16, 2025. This summary is intended
to provide general information only and is reflective of the opinions of Commerce Trust. This material is not a recommendation of any particular security, is not
based on any particular financial situation or need and is not intended to replace the advice of a qualified attorney, tax advisor or investment professional.
Diversification does not guarantee a profit or protect against all risk. Commerce Trust does not provide tax advice or legal advice to customers. Consult a tax specialist regarding tax implications related to any product and specific financial situation. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
Commerce Trust is a division of Commerce Bank.
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