Why the Dollar, Gold, and Bitcoin Have Been So Volatile Lately

The U.S. dollar plays a central role in financial markets, the broader economy, and daily life. It is the main currency used to buy goods and services, and its value shifts based on things like interest rates, inflation, and trade policy. When the dollar is strong, it costs less to travel abroad or buy imported goods. When it is weak, companies that sell products overseas can earn more from those sales. Because of this, changes in the dollar's value have a real impact on investment portfolios.

After falling when tariffs were introduced last year, the dollar has since steadied and even gained some ground in recent weeks. Concerns about the national debt and the direction of monetary policy (meaning decisions made by the Federal Reserve, also called the Fed, about interest rates) can create doubt about the dollar's future. These concerns have also pushed up the prices of assets like gold and Bitcoin, which some investors see as alternatives to holding dollars.

All of these trends are tied together by what is sometimes called the "debasement trade." This is the idea that government policies will steadily erode the dollar's value over time. While this concept has drawn a lot of investor attention in recent years, recent events suggest the full picture is more complicated. Taking a closer look at what is driving each of these asset classes, and how they can fit into a well-built portfolio, helps explain what is going on.

The dollar's drop in 2025 was caused by several things happening at once: tariffs being put in place, worries about government budget deficits (meaning the government spending more than it takes in), and shifting expectations for Fed interest rate decisions. The reaction to tariffs was surprising. Normally, when tariffs reduce imports, there is less need to exchange dollars for foreign currencies, which should make the dollar stronger. Instead, the opposite happened. Businesses, foreign governments, and central banks around the world started moving away from the dollar because of the uncertainty created by these new trade policies.

At its lowest point, the dollar index (a measure of the dollar's value against a group of major currencies) dropped well below 100 for the first time in several years. Since then, it has steadied and recovered somewhat, and it is still much stronger than its historical average. A few factors have helped bring the dollar back. First, the Fed did not rush to lower interest rates even as job market concerns grew. In fact, some started to think the Fed might raise rates instead, which tends to support the dollar's value. Higher interest rates in the U.S. compared to other countries can attract money from global investors into dollar-based investments, which pushes the dollar higher.

Second, the Japanese yen has weakened significantly, recently hitting a 40-year low near 163 yen per dollar. ² This reflects a big gap between interest rates in the U.S. and Japan, where Japan's central bank has been raising rates only slowly. A weaker yen makes the dollar appear stronger by comparison, even if the dollar is losing ground against other currencies. Japanese officials may step in to prop up the yen, but historically that has only offered short-term relief, since Japan's lower interest rates are rooted in deeper economic challenges like an aging population and slower growth.

Third, global tensions, including the conflict with Iran, have at times pushed investors toward the dollar as a so-called "safe-haven" asset, meaning a place to put money when the world feels uncertain. The recent agreement between the U.S. and Iran has eased some of that demand, and serves as a reminder that currency values can change quickly when the geopolitical situation shifts.

It is worth noting that the dollar remains the world's dominant reserve currency, meaning most countries hold it as part of their national savings. This role is deeply embedded in global finance. Similar worries about the dollar being replaced came up during Japan's rise in the 1980s, after the euro was introduced, and as China's economy grew. In each case, the dollar held its ground. Other currencies and cryptocurrencies may slowly gain importance over time, but that kind of shift would take decades, not years.

Many of the same forces have contributed to gold's steep drop from $5,400 to around $4,100, a significant reversal for an asset that many investors had turned to as protection against budget concerns, a weaker dollar, and geopolitical risk. ³ Over the past two years, gold had benefited from a number of tailwinds: a weaker dollar, rising purchases by central banks looking to diversify away from dollar assets, global tensions, and growing interest from investors seeking assets that hold their value. These factors pushed gold prices to levels that already assumed a lot of continued good news.

As the dollar stabilized and recovered somewhat, gold's price reversed. The partial easing of geopolitical tensions following the U.S.-Iran agreement also reduced demand for gold as a safe-haven asset. On top of that, with the Fed keeping rates steady rather than cutting them, there is a higher cost to holding gold since gold does not pay any interest or dividends.

Gold, like many other commodities (meaning raw materials whose prices are set by supply and demand), tends to go through cycles of rapid gains followed by sharp declines. After surging during the high-inflation environment of the late 1970s, gold peaked above $800 per ounce in 1980 and did not return to that level until 2007. After the 2008 financial crisis, gold nearly doubled to around $1,900 per ounce by 2011, then fell back toward $1,000 over the years that followed, even while the Fed kept interest rates very low.

Some investors buy Bitcoin as an alternative to the dollar or other traditional investments. In practice, though, Bitcoin has not acted like a safe-haven asset. It can be very hard to predict how Bitcoin will behave, except that it tends to move with the broader market. Specifically, Bitcoin and other cryptocurrencies (digital currencies not tied to any government) are often highly volatile, meaning their prices can swing dramatically. They tend to rise when investors are feeling confident and fall when uncertainty is high.

Bitcoin's recent moves may be confusing for investors who expected it to benefit from the same concerns that briefly pushed gold higher. While Bitcoin did reach a new all-time high of around $125,000 last October, it has since fallen to around $60,000. This has happened even as the broader stock market has climbed in recent months, driven largely by enthusiasm around artificial intelligence (AI) stocks.

This kind of volatility and unpredictability is exactly why it is important to think of Bitcoin and similar assets as just one part of a larger, diversified portfolio (a mix of different types of investments). Like gold, Bitcoin does not generate any income, so its value depends entirely on its price going up. Unlike gold, Bitcoin has a much shorter history and still faces a great deal of uncertainty. Price swings of 50% or more in a single year are not unusual for Bitcoin, as seen recently and back in 2022.

For long-term investors, the bigger point is that the value of any single asset, whether that is the dollar, stocks, bonds, gold, or Bitcoin, should always be considered in the context of the whole portfolio. Each of these assets has its own characteristics that can help or hurt performance depending on the environment. Choosing the right mix of investments that lines up with long-term financial goals is the best way to grow wealth and manage risk.

References

1. Based on the DXY index as of July 3, 2026

2. https://www.cnbc.com/2026/06/30/japan-yen-falls-lowest-level-since-1986-dollar-intervention-risk.html

3. From January 28, 2026 to July 3, 2026

Index Descriptions

DXY

The DXY is a U.S. dollar index based on a basket of currencies, including the Euro, Yen, Pound, Canadian Dollar, Swedish Krona and Swiss Franc.