Dollar Drops to Lowest Point in 4 Years—What This Means for Your Finances and Budget

Main Insights

• The U.S. dollar has dropped by 11% over the last year, leading to increased prices for imported products and the possibility of rising interest rates.

• Traditional safe investments are showing signs of stress: gold has soared to over $5,500 per ounce—almost double its value from a year ago—as investors move away from assets tied to the dollar.

The dollar has reached its lowest point in four years, and this shift is likely to affect your finances. The U.S. Dollar Index fell to 96 today, marking an 11% decline over the past year. Despite this, President Donald Trump stated on Wednesday that he is "not concerned" about the currency's fall.

For consumers, a weaker dollar translates into more expensive imports, higher fuel prices, and the potential for increased interest rates on mortgages, auto loans, and credit cards. Here’s a breakdown of why this is happening and what you can do in response.

Understanding the Dollar's Decline

The dollar tends to lose value when international investors and foreign central banks question the reliability of U.S. assets. Several factors have contributed to the recent downturn: the Federal Reserve reduced interest rates three times in late 2025, which generally weakens a currency. Ongoing inflation worries, geopolitical disputes over Greenland and trade policies, concerns about the Federal Reserve’s independence following a Department of Justice investigation into Chair Jerome Powell, and speculation about coordinated efforts between the U.S. and Japan to support the yen have all played a role.

Since the Bretton Woods Agreement in 1944, the U.S. dollar has been the world’s primary reserve currency. Central banks globally hold dollars to support their own currencies, and the dollar remains the main currency for international trade.

As of the third quarter of 2025, approximately 57% of global foreign-exchange reserves were held in dollars, highlighting its ongoing influence, even as its share gradually declines.

Recently, uncertainty in both the economy and geopolitics has led to what experts call the "Sell America" trend, where investors are offloading U.S. stocks, bonds, and dollars at the same time. Gold prices have surged to over $5,500 per ounce this week—a 20% increase since the start of the year—as investors seek safer assets, a role the dollar once filled.

How a Weak Dollar Impacts Americans

When the dollar loses value, nearly every aspect of your financial life can be affected:

• More expensive imports: Tariffs introduced by the Trump administration have already raised prices on electronics, clothing, vehicles, and appliances. A weaker dollar would make imported goods even pricier.
• Rising fuel prices: Oil is traded globally in dollars. When the dollar weakens, oil becomes less expensive for other countries, which can increase demand and drive up prices at U.S. gas stations.
• Higher borrowing costs: If foreign investors require greater returns on U.S. Treasury bonds due to a weaker dollar, interest rates on mortgages, car loans, and credit cards could climb.
• Pressure on retirement savings: Retirees may be hit twice: inflation reduces their purchasing power, and the value of bond-heavy portfolios may fall.
• Costlier international travel: The dollar’s reduced value means your money doesn’t go as far abroad, making vacations, overseas education, and foreign purchases more expensive.

Investing in assets outside the U.S. dollar, such as international stocks, can help shield your finances from dollar volatility. The MSCI All Country World ex-USA Index, which tracks global stocks, has performed strongly since the introduction of tariffs, rising 29% in 2025 compared to the S&P 500’s 17% gain.

Ways to Safeguard Your Finances

While you can’t influence currency markets, there are steps you can take to reduce the impact:

• Expand your investments internationally: Consider allocating part of your portfolio to foreign stocks and bonds in stable economies with robust currencies. International exchange-traded funds (ETFs) offer a convenient way to do this.
• Look at alternative assets: Gold has reached unprecedented highs above $5,500 per ounce and can act as a hedge against dollar weakness. Silver has risen even more sharply, up nearly 60% this year. However, these assets could lose value if the dollar rebounds and investors exit these safe havens.
• Reduce variable-rate debt: Paying down debts with variable interest rates can help protect you if borrowing costs rise.

Conclusion

The dollar’s status as the world’s reserve currency has long provided Americans with benefits like lower interest rates, affordable imports, and the ability to finance large government deficits at relatively low costs. As the dollar weakens, these advantages begin to erode.