Currency Hedging for Expats: When the Dollar Weakens, What Should You Do?
The US dollar fell over 9% in 2025—its worst performance in years. For expats juggling multiple currencies, this kind of volatility can have a real impact on wealth. Here's how to think about managing currency risk without overcomplicating things.
If you're an expat, you're probably used to thinking about money in more than one currency. Whether you're earning in euros but planning to retire in sterling, or holding US dollar investments while paying bills in a local currency, exchange rate movements can quietly erode—or enhance—your wealth over time.
The dollar's sharp decline last year caught many investors off guard. And while forecasts vary, a number of major banks expect the dollar to remain under pressure through at least the first half of 2026. For expats, that raises an important question: should you be doing something about it?
Why did the dollar fall?
Several factors contributed to the dollar's weakness in 2025. The Federal Reserve cut interest rates three times, reducing the yield advantage that had made US assets attractive to foreign investors. Meanwhile, concerns about US fiscal policy, political uncertainty, and tariff-related disruptions weighed on confidence.
When investors are less enthusiastic about a country's assets, demand for its currency tends to fall. That's essentially what happened.
Looking ahead, most forecasts suggest the dollar could weaken further in the coming months before stabilising later in the year. Of course, currency markets are notoriously difficult to predict, and short-term movements often defy expectations. But the direction of travel does seem to favour a softer dollar for now.
What does this mean for expats?
The impact depends on your personal circumstances. If you're earning in dollars but spending in a stronger currency—say, euros or sterling—a weaker dollar reduces your purchasing power. On the other hand, if you're planning to convert a lump sum from another currency into dollars, a weaker dollar means your money goes further.
For expats with investments denominated in dollars, the picture is more nuanced. A falling dollar can reduce returns when measured in your home currency. But if those investments are in global equities, the underlying companies may actually benefit from a weaker dollar, since many earn revenue in other currencies.
The key point is that currency movements don't affect everyone the same way. Understanding your own exposure is the first step toward managing it effectively.
Practical ways to manage currency risk
You don't need to become a currency trader to protect yourself from exchange rate volatility. There are a few straightforward strategies that can help.
Spread your conversions over time. Rather than converting a large sum all at once, consider breaking it into smaller amounts over several months. This approach—sometimes called "averaging in"—reduces the risk of converting at an unfavourable rate. It's the currency equivalent of drip-feeding into an investment.
Use forward contracts for known future expenses. If you know you'll need to convert a specific amount at a specific time—for example, to pay school fees or complete a property purchase—a forward contract lets you lock in today's rate for a future date. This removes the uncertainty and can make budgeting easier.
Consider multi-currency accounts. Holding funds in different currencies gives you flexibility. Instead of converting immediately, you can wait for a more favourable rate. Some platforms also allow you to set rate alerts, so you're notified when the exchange rate reaches a level you're comfortable with.
Review your investment currency exposure. If your portfolio is heavily weighted toward dollar-denominated assets, a sustained decline in the dollar could drag on returns. Diversifying across regions and currencies can help balance this out. That doesn't mean selling everything—just being aware of where your exposure lies.
What about hedging?
Currency hedging—using financial instruments to offset exchange rate risk—can make sense in certain situations. For example, some investment funds offer "hedged" share classes that remove the currency impact, so returns are driven purely by the underlying assets.
But hedging isn't free. It adds complexity and cost, and in some cases, it can reduce returns if the currency moves in your favour. For most expats, simpler strategies like those mentioned above are often more practical.
The bottom line
Currency risk is an unavoidable part of life as an expat. But it doesn't need to be a source of constant anxiety. By understanding your exposure and using a few straightforward tools, you can reduce volatility without overcomplicating your finances.
The dollar may well continue to weaken in the months ahead. But rather than trying to predict exactly when or by how much, it's usually better to focus on what you can control: spreading your conversions, locking in rates where it makes sense, and keeping your portfolio well diversified.
Will is an Independent Financial Adviser with over a decade of experience helping expats make the most of their international status.