When the US dollar falls, it can feel like an American story. But if you invest from the UK, a weaker dollar has a direct effect on your returns, on the FTSE 100 and even on the cost of your next trip to New York. Understanding how it works helps you avoid being surprised when your US shares rise in dollars but barely move in pounds.
What a weak dollar means
A weak dollar simply means each dollar buys less of other currencies. For a UK investor, the most important rate is sterling against the dollar, often called cable. If the pound rises from $1.30 to $1.35, the dollar has weakened against sterling. Each pound now buys more dollars, and each dollar is worth fewer pounds.
The effect on US shares you own
When you buy US shares or a US fund from the UK, you are effectively making two bets: one on the shares and one on the dollar. If the shares rise 5 per cent but the dollar falls 5 per cent against the pound, your return in pounds is roughly zero. If both fall, your losses are bigger in pounds than they look in dollars. The reverse is also true, which is why a strong dollar has flattered UK investors’ US returns in some years.
This is why some UK investors choose funds that remove currency swings, a topic we cover in our guide to hedging.
The effect on the FTSE 100
Many of the biggest FTSE 100 companies earn most of their profits abroad, often in dollars. When the dollar weakens, those overseas profits are worth fewer pounds when they are converted back. That can weigh on the index, even if the businesses themselves are doing fine. More domestically focused UK companies, such as those in the FTSE 250, tend to be less affected.
Why the dollar weakens
The dollar can fall for many reasons. Expectations of lower US interest rates make it less attractive to hold dollars. Political uncertainty in Washington can also play a part, as can investors moving money into other markets when the US looks less appealing. The morning after the 2026 US midterms, for example, the dollar slipped as investors digested the result, which you can read about in our Morning Market Brief.
Everyday effects
A weaker dollar has some benefits for people in the UK. US holidays and goods priced in dollars become cheaper. Commodities such as oil are priced in dollars, so a weaker dollar can soften the cost of imports, although the price of oil itself usually matters far more.
What to keep in mind
Currency moves can go on for months or reverse quickly, and they are notoriously hard to forecast. Rather than trying to guess the next move, it helps to know how much of your portfolio is exposed to the dollar and whether you are comfortable with that. Over long periods, currency swings tend to matter less than the performance of the underlying investments, but in any single year they can make a big difference.
Understanding currency risk is part of becoming a more rounded investor. If you want to see where your knowledge stands, take the free Samuel & Co Trading Trader Assessment.
