Insights

The US Dollar Free Lunch Is Over. What Now? USD Investors

30 July 2025

We expect a multiyear US dollar bear market to develop, in which we expect the currency to drop at least 15% in the face of waning US economic exceptionalism and political reliability.
Given this view, we recommend that US-based investors increase exposure to non-US assets and/or reduce any existing foreign currency hedges.
We suggest a dynamic, differentiated currency hedging framework that customizes hedge ratios by currency and can adapt as currency valuations and dynamics evolve.

US investors who favored domestic investments over currency unhedged foreign investments have enjoyed a long period of higher returns and lower risk by avoiding losses on foreign currency. However, the dynamics have changed in 2025, and we believe the “new normal” will persist.

Over a decade-long bull market, the US dollar’s real value increased against a broad range of currencies. Solid relative GDP growth and exceptional corporate earnings growth supported strong capital inflows, high US interest rates relative to other major countries, and the widespread view of the US dollar as a safe haven. The US Federal Reserve’s broad trade-weighted US dollar index rose 46.1% from its trough in 2011 to its peak in January 2025. For much of this period, the dollar also enjoyed historically negative correlations to risky assets. Conversely, the currency return within unhedged foreign investments decreased returns and increased portfolio risk.

However, it is exceptionally difficult for us to see how the performance of the last 15 years can persist for the next 10 to 15 years — or even the next three to five. We believe this US dollar free lunch era is over.

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Currency Risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.

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Diversification does not ensure a profit or guarantee against loss.

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