What’s on the Other Side of Every Trade? A Serious Look at Currency Investing
Every investor holds a currency position, whether they know it or not.
For example, an American who keeps everything in U.S.-dollar-denominated stocks, bonds and bank deposits has made a concentrated bet on a single piece of paper issued by a single government. For most of the past 15 years, that bet paid off handsomely and invisibly. In the early 2000s and over the past few years, it stopped paying.
The U.S. Dollar Index fell roughly 9.5% in 2025, its worst annual performance since 2017, and it posted the weakest first half since 1973. The euro gained about 13.1% against the dollar, the Swiss franc over 14% and the Norwegian krone over 13%. Investors who assumed currency was background noise discovered it was a very loud instrument.
This Battle Bulletin is about treating currencies as what they are: a distinct asset class with its own drivers, its own risks and its own role in a properly diversified portfolio. This is not a case for speculation or leverage. It is a case for understanding relative value among the world’s major monies and for refusing to let one government’s fiscal choices determine the fate of everything you own.
Of course, all investments carry risk of loss. The value of stocks, bonds, currencies and precious metals can decline. This bulletin is a backgrounder for your consideration, not a personalized recommendation. Discuss this with your financial advisor and always do your own research prior to making any investment.
Let’s Start With the Investable Universe
Not all currencies deserve consideration. Of the roughly 180 circulating currencies in the world, the serious investor should confine attention to the 20 or so largest. Within that group, your focus is best allocated to currencies that float with relatively little management. The currency’s price tells you something only if the price is allowed to move. The Chinese renminbi trades inside a band administered by the People’s Bank of China. The Hong Kong dollar is pegged. The Saudi riyal is pegged. The Danish krone shadows the euro by design. Whatever their other merits, these currencies are policy instruments, and holding them means trusting a bureaucracy to maintain an arrangement that history says bureaucracies eventually abandon, usually at the worst possible moment for the holder.
The relatively clean float among major currencies generally includes the U.S. dollar, the euro, the Japanese yen, the British pound, the Swiss franc, the Norwegian krone, the Swedish krona, and the Canadian, Australian and New Zealand dollars. Central banks in these countries intervene occasionally, and the Swiss National Bank has a well-documented history of leaning against franc strength. But on the whole, these prices are set by markets, which means they carry information and can be analyzed. That is the universe. Everything below the top 20 can be a liquidity trap, a capital control regime or a lottery ticket.
Currencies Are Not Equities
The next element we’ll look at is conceptual. Investors raised on stocks tend to import equity thinking into currencies, and it does not fully transfer. A stock is a claim on a (hopefully) growing stream of earnings. Over long horizons, a good business compounds. But a currency compounds nothing by itself. It is a relative price between two national monies, and for every currency that rises, another falls. Currency investing is a zero-sum exercise in relative behavior, plus whatever interest the deposit or instrument pays.
That distinction matters for expectations. In some years currency returns run parallel to equity returns. A U.S. investor holding Swiss francs in 2025 earned a currency gain in the same neighborhood as the Dow’s price gain, but the mechanism was entirely different. The Dow rose because 30 large businesses earned money and investors paid up for those earnings. The franc rose because global investors marked down the relative standing of the dollar.
The former is wealth creation. The latter is wealth measurement. Confusing the two leads investors to chase currencies the way they chase momentum stocks, and currencies do not generally reward that behavior. They tend to reward patience, valuation discipline and an accurate reading of relative fundamentals.
The volatility profile differs as well. Major pairs typically move with a fraction of the volatility of equity indexes, and the compensation for that lower volatility is lower expected return. Currencies in a portfolio are not there to make you rich. They are there to contribute to a diversified portfolio.
One Currency Is Not Diversification
Here’s the uncomfortable arithmetic for the typical investor. Own the S&P 500, a bond ladder, a money market fund and a house, and you may believe you’re diversified across hundreds of positions. But measured in currency terms, for the most part you own one position at 100% weight. Since nearly every asset you hold is priced in this currency, and your future liabilities are denominated in it, the concentration feels natural. But it is still concentration.
The argument to ignore currencies writes itself when the dollar is strong, as it was for most of 2011 through 2024. During those years, unhedged foreign exposure was a drag, and dollar concentration looked like wisdom.
But then 2025 arrived with a new administration and new policies, and the same concentration subtracted double digits of global purchasing power in 12 months. Morningstar noted that through September 2025, the dollar had depreciated 13.1% against the euro and about 14% against the franc. An American with no foreign currency exposure did not avoid the currency market that year. They simply took the losing side of it, in size, without ever placing the trade consciously.
What Actually Drives Relative Currency Values
Currency prediction has a deserved reputation for difficulty over short horizons. Over multiyear horizons, relative valuations generally respond to identifiable forces, and the investor’s job is to weigh them together rather than fixate on any one factor. And yes, I’ll use the word “relative” often since that’s the key element.
Relative inflation. Purchasing power parity is a poor timing tool and a good anchor. Persistent inflation differentials eventually pull exchange rates toward lower inflation. A currency whose domestic purchasing power erodes at 4% annually while another erodes at 1% fights a three-percentage-point headwind every year until the differential closes.
The relative fiscal situation. Deficits matter as a percentage of GDP, and they matter more when they’re structural rather than cyclical. A government borrowing 6% to 7% of GDP at full employment, as the United States has been doing and is forecast to do, is signaling that the gap will be closed by growth it cannot manufacture, austerity it will not choose or monetary accommodation it will eventually demand. Markets price that third possibility into the currency. Much of the dollar’s 2025 slide traces to exactly this reassessment of American fiscal credibility.
The relative national debt position. Flow is the deficit; stock is the debt. Gross debt above 100% of GDP does not doom a currency immediately, as Japan long demonstrated, but it removes room for error and raises the temptation toward financial repression, where rates are held below inflation to erode the debt quietly at the expense of anyone holding the currency. Countries with low debt ratios retain policy freedom, and policy freedom is what a currency holder is ultimately buying.
The global view of risk and credit standing. Currencies carry reputations. The franc and yen have historically attracted crisis capital; the dollar did, too, until recently. That reputation is now shifting under the dollar’s feet. In early 2026, Deutsche Bank’s head of FX research went so far as to call the dollar’s safe-haven status a myth, observing that the dollar has decorrelated from equity sell-offs. The freezing of Russian central bank reserves in 2022 taught every reserve manager on earth that access to dollar assets is conditional on political alignment, and the resulting migration into gold and alternative reserves is a slow-moving repricing of American credit standing with years left to run.
Total float and share of global economic activity. Liquidity is a value in itself. The dollar and euro dominate global payments and reserves, which grants them a durability premium and their holders an exit door in any crisis. Smaller floats like the krone swing more widely precisely because the pool is shallow. One possible strategy is to hold the deep currencies for stability and the shallow, well-governed ones for value and size positions accordingly.
Interest rate differentials. In the short run, this is often the dominant driver. Capital flows toward yield, and a currency where local rates are relatively higher, combined with sober fiscal and other financial management, tends to appreciate against a currency backed by a low-rate environment. Following the Federal Reserve’s 2025 cuts, Norway emerged as the highest-yielding G10 currency, a fact State Street cited in maintaining its positive stance on the krone. But rate differentials are the weather, while the fundamentals above are the climate. Chasing carry into a deteriorating currency is how investors get paid in pennies and charged in dollars.
Where We Have Felt Confident: Commodity Producers and Fiscal Adults
Applying the above filters over the years has repeatedly led us to the same short list: currencies of countries that produce real things the world must buy and countries that run their public finances like adults. Sometimes the same country checks both boxes.
The Norwegian krone. Norway is the developed world’s cleanest expression of fiscal responsibility paired with good fortune in terms of natural resources. Its sovereign wealth fund, built from oil and gas revenue, exceeds $1.7 trillion for a nation of 5.5 million people. The state is, in net terms, a creditor of historic proportions. The krone spent much of the past decade undervalued and out of favor, then gained about 13% against the dollar in 2025 as energy revenues, top-of-class G10 yields and the dollar’s troubles converged. A shallow float means volatility, but the underlying balance sheet is the strongest in the developed world.
The Australian dollar. Australia exports iron ore, natural gas, coal, gold and food into Asia’s growth, and its public debt ratio remains modest by G7 standards. The Aussie is a classic commodity currency, rising with global risk appetite and resource demand. It lagged the European currencies in 2025, gaining mid-single digits, then extended toward the 0.70 to 0.71 range in early 2026 as the Reserve Bank of Australia held a firmer line than the Fed and commodity prices stayed elevated.
The euro against the U.S. dollar. The euro is nobody’s idea of a perfect currency, and skeptics like Doug Casey dismiss it outright as a committee construction of bankrupt welfare states. But currency investing is relative, and the relevant question is not whether the euro is sound in the abstract but whether the eurozone’s aggregate fiscal position, external balance and monetary conduct compare favorably with America’s right now. On deficits, the comparison currently favors Europe. The euro’s 13.1% gain in 2025, carrying it to an all-time high in trade-weighted terms, reflected that relative judgment, along with the sheer depth of euro markets as the only alternative parking lot for reserve-scale capital.
The Swiss franc. Switzerland pairs perpetual current account surpluses with low public debt, low inflation and an institutional culture that treats debasement as a moral failing. The franc gained over 14% against the dollar in 2025, extending a century-long record of relative appreciation. Counter to the interest rate differential argument, the cost of that virtue is near-zero yield and a central bank that periodically resists further strength. What the franc pays is preservation, and over long stretches, preservation against the dollar has been worth several percent a year all by itself.
A Word About the Kiwi
New Zealand’s dollar is routinely comingled with the commodity currency bloc, filed alongside the Aussie and the loonie as if the three were interchangeable. The grouping is correct as far as it goes but misleading past that point. The kiwi is genuinely commodity linked: Dairy, meat and horticulture dominate exports, dairy auction prices move the currency, and China’s appetite sets the tone as New Zealand’s largest trading partner. But the kiwi’s commodities are soft, not hard. New Zealand sells protein and produce, not energy and metals, so it participates only partially in the hard-asset cycles that drive the loonie and the Aussie. Add a chronically deficit-prone current account, a small and shallow float, and a central bank with a history of aggressive swings, and the kiwi becomes the most fragile member of the family.
The year 2025 demonstrated the distinction. While the Aussie gained against a falling dollar, the kiwi actually lost ground, sinking a bit as the Reserve Bank of New Zealand slashed its cash rate to 2.25% in response to a shrinking economy, a second-quarter GDP contraction of 0.9% and unemployment at a five-year high. Two commodity currencies, one dollar bear market, opposite outcomes. The lesson is that the commodity label is a necessary screen, not a sufficient one. The fiscal, monetary and external filters still have to be applied, and on those filters New Zealand currently fails where Australia passes.
Gold: The Currency Without a Central Bank
No serious discussion of currencies can end with paper. Gold is the one money in the system that no committee can print, and its price is best understood not as a commodity quote but as the inverse of confidence in the entire fiat complex. With that reading, the recent message is unambiguous. Gold surged roughly 65% in 2025, its largest annual gain in over four decades, and by mid-2026 it traded above $4,100 per ounce. Central banks, the same reserve managers that absorbed the 2022 lesson about the political conditionality of dollar assets, bought at elevated rates for a third consecutive year.
What the Commentators Are Saying
The independent financial analyst world saw all this earlier than Wall Street did, which is worth acknowledging even while discounting the theatrics. Chuck Butler deserves first mention because he’s been making the currency diversification case longer than almost anyone in American finance. . His Daily Pfennig letter, still publishing today, has hammered a single theme since at least 2005: Deficits do matter, and never in history has one country owed so much to the rest of the world without a currency crisis.
Jeff Opdyke, the former Wall Street Journal writer now publishing from Portugal, has argued for years that Americans should hold foreign accounts and currencies. He warned of the dollar’s diminution as BRICS nations assemble alternatives and claims vindication in the 2025 decline.
Doug Casey remains the maximalist: To him, every fiat currency is an IOU nothing — the dollar most dangerously so given its numeraire status. His prescription is to exit into precious metals rather than rotate among papers.
Grant Williams offers the historically grounded frame, tracing an 80-year arc from Bretton Woods and arguing that reserve currencies fade through redirection rather than collapse, with the 2022 reserve freeze as the Suez moment that taught central banks the dollar carries political risk.
Alexander Green and the Oxford Club strategists occupy the moderate wing, advocating global diversification across asset classes within conventional portfolios rather than using it as an escape from them.
And the mainstream has now converged partway toward all of these views. J.P. Morgan’s private bank tells clients the dollar’s risks skew downward and recommends revisiting currency allocations. Morningstar calls the dollar still overvalued despite the 2025 decline and points to non-U.S. assets for value and currency appreciation potential. Morgan Stanley has floated another 10% of dollar downside by the end of 2026. When the contrarians and the wire houses agree on direction and argue only about magnitude, the sensible conclusion is not panic. It is allocation.
The Opportunity
Currency investing done properly, like a lot of our daily chores, is unexciting. Confine yourself to the major floating currencies. Expect currency-like returns, not equity-like returns, and understand that in the occasional year the two will rhyme. Judge currencies on relative money growth, relative inflation, relative deficits and debt, credit standing, float and rate differentials — weighed together — and apply those filters even inside the commodity bloc, where the kiwi and the loonie show that geology alone is not enough. Favor the monies of commodity producers and fiscal adults: the krone, the Aussie, the franc and the euro as the liquid counterweight to the dollar. Keep gold as the anchor beneath the whole structure, the one currency that answers to no finance ministry. And above all, stop mistaking a 100% dollar portfolio for a neutral position. There is no neutral position. There is only the currency risk you chose and the currency risk you never noticed you were taking.
FDIC-insured deposits denominated in foreign currency are not insured against market loss due to a decline in the value of a particular foreign currency; if the price of a currency falls and you sell a loss of principal will occur.
Battle Bank has marketing relationships with various publishing companies that include financial renumeration. At times in our articles there will be quotes from editorial content published by these organizations.
7.28.26 – 2026-06-COR-0164
