Stock Market Insights: The dollar’s decline - Fed signals, Trump’s stance and what investors should watch
- Dr. Richard Baker
- 22 minutes ago
- 3 min read
Dr. Richard Baker, AIF®, is the CEO and executive wealth advisor at Fervent Wealth Management.
It snowed several inches in our area this past weekend, and I thought today about how much I enjoyed seeing where kids had been sledding during my drive. Some found big hills, and others were sliding down some dinky hills. The U.S. dollar as a currency must have found one doozy of a hill because it has slid a lot.
The U.S. dollar is steadying after sliding on January 27 in its biggest one-day decline since April's global tariff shock, and has been falling since Donald Trump took office a year ago. It fell throughout 2025 but has fallen sharply since the beginning of this year, and it's now at a four-year low against the world's major currencies.
The dollar is already down over 10% this year from its 2025 high point, and most analysts say it is due to macro headwinds (external economic stuff). These external sources of friction for the dollar include the world's central banks’ diversification away from the dollar, worsening U.S. deficits and concerns about the Fed's independence. Additionally, there are significant geopolitical issues, including Venezuela, Greenland and new tariff threats against Canada and Korea. These geopolitical headlines might just be talk, but they are all potentially destabilizing.
President Trump, who spoke in Iowa on January 27, downplayed concerns over dollar weakness, saying he was comfortable letting the dollar “seek its own level” in the marketplace, according to Yahoo Finance. The markets view this as a sign that the Trump Administration prefers a weaker dollar, as it could boost U.S. manufacturing and exports.
The dollar is still strong. For instance, with the exception of 1985, the dollar is currently stronger against the British Pound than at any time in the last fifty years; it’s just that the dollar is expected to be even stronger as the world's tentative reserve currency. Although the dollar has fallen, it remains comparatively strong historically. There are positives to a weaker dollar. As the Trump Administration often says, a weaker dollar can stimulate the economy. That is because it makes our U.S. exports more attractive to overseas buyers, who pay less for the goods. Many American companies earn substantial profits abroad, and when the dollar weakens, those profits rise and boost earnings, which is great for stocks.
It is very unusual for a president or even a treasury secretary to speak about their desires for the dollar as a currency. For decades, the policy of both Democrats and Republicans in office was to maintain a strong dollar and never comment on it. Of course, these are unusual times.
The Federal Reserve met recently and held rates steady after three consecutive cuts. The Fed is expected to resume cutting rates later this year, which plays into the dollar's weakness by making it slightly less attractive to hold. The upcoming Fed speakers and the released notes from the January 28 Fed meeting could serve as a pivotal crossroad for the dollar’s long-term trend. Any hawkish (tough) language in the Fed’s commentary could strengthen the dollar and calm the investors. On the contrary, a dovish (weaker) tone could further weaken the dollar. This needs to be watched.
In the accounts I manage, I have leaned into some foreign currency holdings as a diversifying hedge against the dollar, and I am glad I did. I still feel good about the market this year, but feel like it will take some tactical massaging to win in these unique times.
As a youngster, I was a crazy sledder. There was no hill I wouldn’t sled, no tree I didn’t think I could miss, and no road that wouldn’t magically be clear of cars when I flew across it. I just hope those making our fiscal decisions have more sense with the dollar than I did with a sled.
Have a blessed week!
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
Opinions voiced above are for general information only and not intended as specific advice or recommendations for any person. All performance cited is historical and is no guarantee of future results. All indices are unmanaged and may not be invested directly.
All investing involves risk, including loss of principal. No strategy assures success or protects against loss.
The economic forecast outlined in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.
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