Trade and financial asset flows, as well as expectations about future supply and demand, are key factors that influence the value of currencies, according to Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group. Haworth explains, “Relative currency values reflect the global flow of funds. When the dollar strengthens, it means more foreign money is flowing into the U.S. than the other way around.” He notes that current and expected interest rates, investments in financial assets, trade flows, and inflation are major drivers of demand for a currency.
A strong U.S. dollar can reduce the cost of imports for American consumers. For instance, if a German car sells for €50,000, it would cost $60,000 in the United States at an exchange rate of $1.20 to €1. If the dollar appreciates to $0.90 to €1, the same car’s price drops to $45,000.
On the other hand, a stronger dollar may negatively affect U.S.-based multinational companies by reducing revenues when foreign sales are converted back into dollars. It can also make U.S. exports less competitive abroad due to higher prices for foreign buyers. “If the dollar continues to strengthen, it could dampen corporate earnings, which could impact stock market performance, in the short term,” says Haworth.
Haworth suggests that investors should not focus too much on currency movements when evaluating domestic stocks but points out that currency values become more significant for those investing in overseas asset classes.
For example, during 2025 up to October 6th, the MSCI EAFE Index—which tracks developed market stocks outside of the U.S.—returned 18.1% in local currency terms. However, U.S. investors saw a return of 28.1% after converting those gains back into dollars due to a weakening dollar earlier in the year. When the dollar strengthens against other currencies, however, this conversion process reduces net returns for U.S.-based investors.
“Currencies fluctuate less than stocks overall, and predicting their direction is difficult because numerous factors that influence relative currency values,” says Haworth. “Equity investors, in particular, should be somewhat insensitive to short-term dollar trends when positioning long-term investment assets.”
Haworth recommends discussing currency considerations with a wealth management professional if overseas investments are part of an investment portfolio.
