The US Dollar Index has risen more than 5.5% from its January low and recently cleared notable resistance, suggesting we could be seeing a shift towards to a strengthening dollar.

From the low it reached at 96 in January to its recent peak at 101.50, the US Dollar Index (DX/Y) has climbed more than 5.5%. DX/Y cleared notable resistance last month when it broke a spread quadruple top at 101.50 and now sits one box below its bearish resistance line. Movement in the dollar can have significant impacts on many areas of the market, so we thought this would be an opportune time to update our dollar study, which looks at how various assets perform when the dollar is rising versus when it is falling.

What is the US Dollar Index (DX/Y)?

Before we get to effects of a rising or falling dollar, we should first discuss what the US Dollar Index is. The US Dollar Index (DX/Y) is priced in terms of a weighted basket of major foreign currencies. When we hear about movements in "the dollar," is typically this index that is being referenced. The US Dollar Index is a geometrically-averaged calculation of six currencies weighted against the US dollar, which has been in existence since 1973. Futures contracts were listed on the index back in 1985 and only one major reconstitution of the index has taken place since that time, a move to include the Euro.

Today the US Dollar Index contains six component currencies, which are "trade-weighted": the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, and Swiss Franc. Prior to the formation of the Euro FX, the US Dollar Index contained ten currencies, including the West German Mark, French Franc, Italian Lira, Dutch Guilder, and Belgian Franc. Today the currency weights contributing to the pricing of this Index are as follows:

Study Parameters:

Rising Dollar Market: Any move of at least 10% from a low constitutes a new "rising dollar market." The beginning of this trend is established at the low watermark and the trend remains in force until a correction of at least 10% occurs, at which point the peak of that rally then marks the end of the rising trend in the dollar. This represents a "trough-to-peak" move in the dollar, and that period is what we use to qualify a rising dollar market.

Falling Dollar Market: Any decline of at least 10% in the dollar index from a peak begins a "falling dollar market". The beginning of this trend is established at the high watermark and the trend remains in force until a rally of at least 10% occurs off a low, at which point the trough of that decline marks the end of the falling trend in the dollar. This represents a "peak-to-trough" move in the dollar, and the period within is what we use to qualify a falling dollar market.

Our study is backward looking and uses a 10% rise (or fall) in the dollar to demarcate rising and falling environments. By this definition we are still in a falling dollar environment and thus you will see in the tables and graphs below, the current period categorized as a falling dollar environment, which started in January 2025, when DX/Y peaked at 110.  This doesn’t necessarily mean that we have not already entered a rising dollar environment - if DX/Y were to hit 105.10 (a 10% move from the low it reached in January) our study would begin a new rising period from the date of the January low.

By the 10% threshold, there have been a total of 14 rising dollar markets and 15 falling dollar markets since 1985 (including the current falling environment, which began last January) using our criteria. The average duration of a (rising or falling) cycle is 512 days, and results in average moves of about +20% in rising environments and -17% in falling environments (keep in mind that the manner in which these trends were calculated means that no trend could have resulted in a move materially less than 10% in either direction).

On average, falling dollar periods have lasted 431 days. Meanwhile, the average rising period has been notably longer at 598 days, with the most recent complete rising period (July 2023 – Jan 2025) lasting 549 days. You will notice that the current falling dollar environment shows a return of just -8% for DX/Y, this is because the dollar has rebounded from its low but not yet reached the 10% mark; at its January low, DX/Y was down roughly 13% from its 2025 peak.

The graph below shows proxies representing US equities, international equities, emerging markets, domestic fixed income, various equity styles (large, mid, small, value, and growth), and commodities. The results show meaningful performance biases during either rising or falling dollar markets for many of these assets. The red bars in the graphics below represent the average performance during all falling dollar markets, while the green bars represent the average performance by that same asset class during all rising dollar markets. For some assets, we did not have data going back to 1985, so returns reflect the average since the time at which we had data, with all assets having data going back to at least 1995. In the bullet points below, we have highlighted a few notable takeaways.

• The S&P 500 Index (SPX) has performed well in both rising dollar and falling dollar but has performed better in falling dollar environments; perhaps speaking to the dollar’s reputation as a risk-on/risk-off indicator.
• As you would expect, international equities have performed significantly better in falling dollar environments. The magnitude of the performance difference – 38% for EFA and 33% for EEM is more than would be explained solely by currency returns.
• It is academically and empirically accepted that commodities tend to perform well in a falling/weakening dollar environment as commodities are priced in US dollars. Gold, crude oil, and the continuous commodity ETF all show significant better returns during falling dollar environments.

Of course, there is a significant amount of variation among the companies that make up the broad US equity market and being big believers in sector rotation, we would be remiss if we didn’t take a closer look to see how the various segments were impacted by the dollar. Although we had to adjust the time frame of the study a bit based upon data availability; the sector portion of our study includes data beginning in 1992. Our study includes the 11 broad sectors (basic materials, consumer cyclicals, consumer non-cyclicals, energy, financials, healthcare, industrials, technology, telecommunications/comm services, real estate, and utilities). The results of the study are shown below. The red bars represent the average performance during falling dollar markets, while the green bars represent the average performance by that sector during rising dollar markets.

Unsurprisingly, basic materials and energy – two sectors that are closely related to commodities performed significantly better in falling dollar environments than they did when the dollar was rising; as did industrials.

While we haven’t reached the 10% threshold we use to denote a change in the “dollar environment” for our study there are signs that the dollar may be in the early stages of a rising dollar regime. As discussed above, the US Dollar Index has risen more than 5.5% from the low it reached earlier this year, recently clearing notable resistance at 101 and now sits just below its negative trend line on its point & figure chart. Given the significant performance differential some assets exhibit in rising vs. falling dollar environments, you use this opportunity to assess your potential exposure to a rising dollar and possibly take steps to mitigate the impact to your portfolio, e.g., switching to currency-hedged international equity exposure.