Why Emerging‑Market Debt Has Risen with a Weak Dollar

How is the weakening dollar affecting your portfolio? The world’s reserve currency fell sharply in the first half of 2025, making it a bruising year. It has recovered some but still sits below where it started the year. Other currencies like the euro, Japanese yen, and Mexican peso look stronger against the greenback. Several factors could influence whether the dollar roars back or recedes. Why should the dollar’s performance matter for everyday investors like you? Morningstar Indexes strategist Dan Lefkovitz explains why and what you can do to protect your portfolio from currency fluctuations.

The bifurcation of the stock market is appearing to divide investors into two camps. There’s a lot of optimism baked into share prices of firms seen as leaders in artificial intelligence, according to Dan Kemp, chief research and investment officer at Morningstar Investment Management Europe. The Market Brief author points to Tesla TSLA as a great example, since investors are ascribing significant value to the company’s unproven, future products. Meanwhile, there’s a lot of pessimism in parts of the market that are not involved in AI. Kemp reminds investors to look for undervalued opportunities in the unloved areas of the market.

The US Dollar’s Value Is Down—and These 3 Investments Are Way, Way Up

On this episode:

What has been going on with the dollar? 

A lot of worried investors are likely asking the same question: How is the stock market going up in this macroeconomic environment? 

And why are bonds doing well?

You have written about the implications for a declining dollar. The dollar and gold typically compete as safe haven assets. It looks like gold is winning this year. Why is that? 

International stocks are outperforming US stocks this year. How does currency play into this? 

Our colleague Morningstar Inc portfolio strategist Amy Arnott joined me on Investing Insights for the Oct. 24 episode. She said investors might be underweight in international stocks despite recent performance. What case would you make to convince folks to consider increasing their overseas exposure? 

Emerging-markets debt is another asset class winning thanks in part to the dollar. Why does Morningstar find this fixed-income segment attractive? 

What risks could threaten the dollar’s dominance in the future?

Why should everyday investors who are saving for retirement or other goals care about whether the dollar falls or rises? And how can they hedge their bets?

Earnings season is underway. You’ve written about how it can be tempting to tweak a portfolio when companies share their forecasts. What should investors keep in mind?

In this week’s Markets Brief, you wrote about how optimism about Tesla’s unproven future growth opportunities highlights what’s going on in the broader market? Can you explain?

What are you keeping an eye on for next week’s column?

Watch more from Morningstar:
2025’s Winners and Losers, from Gold to Small Cap Stocks to the 60/40 Portfolio

The Stock Market Is Ultra-Concentrated. Here’s How to Manage the Risks.

New Crypto ETFs Are Coming. Here's How Investors Can Prepare

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