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Investing Specialists

How a Falling Dollar Affects Your Portfolio

Christine Benz

Trying to predict the direction of the dollar--or the trajectory of any foreign currency--is a tricky business. Not only do you have to get your arms around the future of the U.S. economy and interest rates, but you also have to think about the U.S.' prospects relative to overseas markets. Government policy--including central bank action (interest-rate policy) and deficits--are in the mix, as is investor sentiment.

Market shocks can affect how currencies behave, too. Immediately after the 9/11 terrorist attacks, for example, the dollar plummeted relative to major foreign currencies. The key question on the docket: Will investors prefer U.S.-dollar-denominated assets in the future, or assets denominated in foreign currencies?

Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.