Market Analysis2025-09-27

Dollar Weakness Signals Expand International ETF Opportunities, Currency Diversification Strategy Becomes Essential

As the U.S. dollar continues its weakening trend, the relative appeal of international equity and emerging market ETFs is rising. Diversifying portfolio risk through currency diversification and capturing global growth opportunities are the key priorities.

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As the U.S. Dollar Index continues to decline, international investing has become significantly more attractive. A weaker dollar boosts dollar-denominated returns on overseas assets and is particularly driving a rebound in emerging market currencies and assets. Now is the time to use a rebalancing calculator to increase international ETF exposure in a U.S.-centric portfolio and maximize risk diversification through currency diversification.

VXUS ETF and Global Diversification

VXUS ETF is a leading international ETF that provides diversified exposure to global equity markets outside the United States. It invests in over 8,000 securities across more than 50 countries, including Europe, Japan, and emerging markets, offering comprehensive geographic diversification. In a weak-dollar environment, European and Japanese exporters benefit, while the dollar-denominated value of emerging market currency assets rises. You can use an asset allocation calculator to consider shifting your U.S.-to-international ratio from 7:3 to 6:4.

Emerging Market ETF Rebound Momentum

Emerging market ETFs, including EEM ETF, are emerging as the biggest beneficiaries of dollar weakness. With valuations in major emerging markets such as China, India, Taiwan, and South Korea relatively undervalued, dollar weakness is providing additional upside momentum. In particular, China's government stimulus policies and India's sustained growth are driving fundamental improvements across emerging markets as a whole, making them attractive from a medium-to-long-term investment perspective.

How European and Japanese Equities Benefit

A weaker dollar directly enhances the competitiveness of exporters in the Eurozone and Japan. German manufacturers and Japanese automakers and electronics companies can expect earnings improvements through a recovery in export competitiveness. ETFs such as VEA (developed markets ETF) or VPL (Asia-Pacific ETF) can provide exposure to these regional beneficiary structures, and you can adjust the currency effect depending on whether you hedge or not.

Reassessing Currency Hedging Strategy

In a weak-dollar environment, unhedged ETFs are more advantageous than currency-hedged ETFs. Currency hedging offsets currency fluctuations, which means you cannot benefit from dollar weakness. In the current environment, it is advisable to increase exposure to unhedged ETFs such as VXUS and EEM, while holding a small amount of currency-hedged ETFs as a hedge against a potential reversal to dollar strength. For managing overall currency exposure, it is recommended to set the ratio of hedged to unhedged assets in the total portfolio at approximately 2:8.

Conclusion

The dollar weakness trend is presenting an excellent opportunity for global portfolio diversification. Combine broad international exposure through VXUS ETF with concentrated emerging market exposure through EEM ETF to maximize currency diversification benefits. Use a rebalancing calculator and asset allocation calculator to gradually increase international allocation in a U.S.-concentrated portfolio, and the key is to strategically decide whether to currency-hedge.

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