The long-awaited promise of inflation’s “impending” demise remains distant as we head further into 2026.
Economists have been assuring us since at least 2023 that inflation is abating. But far from this, what we’re actually seeing is a persistently weak dollar that is keeping prices elevated across several asset categories.
Unfortunately, due to the somewhat politically sensitive nature of this topic, persistent inflation also serves as an inexpedient subject—a proverbial “elephant in the room”—that many analysts shy away from discussing. But given the impact that currency weakness is having on a huge swath of assets, it cannot be so easily ignored by investors right now.
Reasons for the dollar’s increasing weakness range from supply shocks—particularly as it pertains to the disruptive impact of global wars—and policy impositions (including tariffs) in recent years that have, in some cases, undermined private sector production. These events have converged to restrict the ready availability of goods in some markets, even as money “printing” continues apace.
In other words, the prevailing conditions over the last few years have allowed for inflation’s classic definition of “too much money chasing too few goods” to exert a negative influence on consumers.
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For instance, according to a poll conducted last fall by the PNC’s Financial Wellness in the Workplace Report, two-thirds (67%) of Americans live paycheck to paycheck. Meanwhile, Axios reports that at least 65% of Americans “feel financially squeezed at least some of the time each month.” The percentage of Americans reporting cost-of-living pressures is up significantly in each of the last two years, and based on recent currency trends, it’s unlikely this year will buck that trend.
A recent event in the currency market drew further attention to this problem after an intervention by the Federal Reserve a few weeks ago. According to an article in Fortune, the dollar’s decline was due to the New York Fed, at the behest of the U.S. Treasury, conducting a “rare rate check” with currency traders on the dollar/Japanese yen exchange rate.
Currency traders were apparently spooked by the rate check and began selling the dollar, forcing it into what Fortune called “an unusually steep decline given the gargantuan scale of the dollar in the global economy.” The result was the U.S. Dollar Index (DXY) plummeting to its lowest level in four years—an event that can signal or precede higher inflation.
Another result of the weakening dollar has been the relentless rise in precious metals prices like gold and silver, with the yellow metal briefly hitting a lifetime high of $5,600 an ounce a couple of weeks ago before pulling back. And while gold is still below that all-time high, its persistent strength reflected in the rising trend of the last several months is another indication of just how entrenched dollar weakness has become.
Another consequence of currency weakness has been a surge in crude oil prices. Light sweet crude oil futures are up 22% from last year’s low around Christmas, in part due to dollar weakness (which magnifies rallies). And of course, stronger oil prices increase transportation costs, which in turn eventually filter into higher prices for a wide range of consumer goods.
In view of the dollar’s persistent weakness, it behooves investors to hedge by having some exposure to assets that tend to actually benefit from this environment. Included in this category are, of course, the traditional safe havens of gold and silver (and related mining stocks).
The Assets That Benefit from Dollar Weakness
But other assets can also benefit from a weak dollar, including industrial, healthcare, materials and energy sector stocks. Consumer staples can also benefit, due not only to the defensive nature of this sector, but also because many of the companies in this space are multinational, which means they generate significant revenue outside the U.S. and experience higher profits when foreign sales are converted into dollars. (And to that end, we have ample exposure to this sector in the Cabot Turnaround Letter.)
Yet another overlooked area that can also benefit from persistent currency weakness is the airlines, since they generate significant revenue outside the U.S. and can see increased profits when foreign sales are converted into dollars. Moreover, dollar weakness tends to increase international demand for U.S. travel. (Hence, the recent addition of an undervalued airline stock to our Cabot Turnaround Letter portfolio.)
In terms of inflation’s impact on the broad equity market, while higher raw material prices can crimp corporate profit margins—in turn resulting in lower stock prices—it’s also true that inflation of the runaway variety can boost demand for equities in general as a currency hedge. That is, if the dollar is in free fall, investors often turn to any asset (including equities) to preserve their diminishing wealth, resulting in stock prices rising categorically in local-currency terms (e.g., Venezuela, whose stock market led the world in returns in 2016 due to a hyperinflationary crisis that year).
This isn’t to say the U.S. will experience a Venezuela-type hyperinflationary event anytime soon. Rather, my point is that with inflation now becoming a secular trend, it necessitates a judicious approach by having broad exposure to the sectors/industries most likely to thrive in a weak currency environment.
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