The dollar peaked at DXY 108.4 in early January 2026 as the tariff announcement cycle drove safe-haven flows. Since then it has given back roughly 6%, sitting around 102 in mid-May. Against the euro it has moved from 1.02 to 1.09; against the yen from 158 to 151.
A weaker dollar cuts both ways. For inflation, it is modestly additive: imported goods become more expensive in dollar terms, which partially offsets the deflationary tailwind from goods categories. For multinationals with significant foreign revenue, it is a tailwind: overseas earnings translate back into more dollars. S&P 500 earnings have a roughly 1-2% benefit per 5% dollar depreciation, on average.
For the debt picture, the dollar’s reserve status matters differently. The US runs large twin deficits (fiscal and current account) and funds them in part through foreign demand for dollar-denominated assets. A structurally weaker dollar, if it represents declining confidence rather than just trade adjustment, would raise the cost of that funding at the margin. The current move looks like trade adjustment. The distinction matters.
One number to watch: the 10-year Treasury real yield. If it rises while the dollar weakens, that is a stress signal. If it falls as the dollar weakens, it is an adjustment story. Right now, real yields are flat. Adjustment story, for now.