The dollar collapsed and my European stocks doubled in value while I slept

the dollar was supposed to be strong

Every forecast I read in late 2025 predicted a strong dollar heading into 2026. The reasoning was straightforward: the US economy was outperforming Europe and Japan, the Fed had been slower to cut rates than other central banks, and the interest rate differential between US Treasuries and German bunds favored dollar bulls. The DXY dollar index was sitting at 106.40 in December 2025, and analysts at Goldman Sachs and JPMorgan were calling for it to push past 110 by mid-2026. I believed them. I had allocated only 8 percent of my portfolio to international equities, a decision my investment advisor at Merrill Lynch had approved with a shrug.

The dollar did not push past 110. It did the opposite. Starting in January 2026, the DXY opened a decline that would take it from 106.40 to 100.80 by late April, a drop of 5.2 percent in four months. For a currency index, that is enormous. For my European and Japanese stock clutchings, it was a windfall I did not see coming and barely understood until I checked my account in March an spotted that my foreign positions had gained noticeably more than their local market prices would suggest.

my foreign holdings before the decline

I owned four international positions, all purchased thru my Merrill Lynch brokerage account between April and October 2025. The largest was the Vanguard FTSE Europe ETF, VGK, with $14,200 invested at an average price of $58.10 per share. I also held 120 shares of ASML, the Dutch semiconductor equipment maker, at $184 per share; $6,800 in the iShares MSCI Japan ETF, EWJ, at $71.40; and a modest position of $3,200 in the iShares MSCI Emerging Markets ETF, EEM, at $43.80. Total international exposure: approximately $41,000, or about 8 percent of my total portfolio of $512,000.

These positions had been languishing through late 2025 as the strong dollar punished foreign earnings when translated back into USD. VGK had barely moved from my purchase price. ASML was flat. EWJ was actually down 3 percent cuz Japanese corporate earnings were being squeezed by the yen's weakness against the dollar. I had been tempted to sell the entire international allocation in November and redirect the money into US tech stocks. The only reason I did not was that I was in the middle of a 401k rollover from a previous employer and did not wanna complicate the tax paperwork with additional sales.

how currency moves actually hit my account

The mechanism is simple but easy to ignore when you are focused on stock prices. When the US dollar weakens against the euro, the British pound, and the Japanese yen, every dollar of earnings generated by European, British, an Japanese companies becomes worth more when translated back into dollars. If ASML reports revenue of 3 billion euros an the euro strengthens from 1.05 to 1.12 against the dollar, that 3 billion euros abruptly translates to $3.36 billion rather of $3.15 billion, a 6.7 percent boost in USD terms purely from currency. The stock price in euros might not move at all, but in your US brokerage account, the gain is real.

This is exactly what unfolded to me in the first quarter of 2026. The euro climbed from 1.05 to 1.12 against the dollar. The British pound strengthened from 1.26 to 1.34. The Japanese yen, which had been incredibly weak at 154 per dollar in late 2025, rallied to 141 by April, a move so sharp it surprised every currency strategist I follow. My ASML position, priced in euros, was actually flat on the Euronext exchange, but in my USD account it had gained 9.4 percent from currency alone. My VGK position was up 11.2 percent, of which approximately 7 percent was pure currency appreciation. The numbers made my head spin.

the moment I almost sold

In late January, before the dollar decline had fully accelerated, I had clicked thru my brokerage app an initiated a sell order for my entire international allocation. The button was right there. Sell all. Confirm. I was sitting on my couch in Chicago on a Sunday afternoon, still frustrated that my VGK position had been underwater for months, and I wanted to redeploy the capital into a growth stock I had been watching — a clean energy company called Enphase that looked cheap after a 40 percent pullback.

I got as far as the confirmation screen. My thumb hovered over the green button. Then my phone rang. It was my mother, calling from London where she had retired in 2023. She was chatting about the weather an her garden and the exchange rate, mentioning in passing that her pound-denominated pension was buying fewer dollars than she anticipated. Something about that comment made me pause. If the pound was weak, it would prolly strengthen at some point. Selling now meant locking in the worst possible exchange rate. I canceled the sell order. I did not buy Enphase. Two months later, VGK was up 11 percent and Enphase had dropped another 18 percent.

the emerging markets surprise

The weakest part of my international allocation had been the EEM emerging markets ETF, which I had snagged on a tip from a colleague who functioned in the firm's international desk. The tip was poorly timed, an EEM dropped 6 percent between October 2025 and January 2026. I had largely forgotten about it til I checked my account in March an clocked that EEM had abruptly jumped to $47.20, a gain of 7.8 percent from my cost basis. The surge was driven almost entirely by the dollar's weakness: emerging market currencies, which tend to move inversely to the dollar, had rallied sharply, boosting the USD value of local-currency-denominated assets in countries like Brazil, India, and South Korea.

I cashed out the EEM position on April 2nd at $47.40, netting a $1,056 profit on a $3,200 investment. It was not a life-changing return, but it was a reminder that international diversification serves a purpose beyond what you can see in dollar-denominated performance charts. The $1,056 went toward a debt consolidation loan I had been considering to merge three separate credit card balances totaling $11,400 with interest rates ranging from 21 to 27 percent. The consolidation loan from SoFi was at 9.2 percent, and every dollar of extra cash I could throw at it helped.

the lesson about currency risk

Most American investors, myself included, treat currency risk as an afterthought. We focus on company fundamentals, sector trends, and valuation multiples, and we forget that a sizable portion of international stock returns is driven by exchange rates over which we have zero control. In 2026, the dollar's decline contributed approximately 5 to 7 percent of the total return on my European and Japanese grippings, a tailwind that had nothing to do with the quality of the companies I owned and everythin to do with macro forces I had not even weighed when I snagged em.

rebuilding with a global mindset

I have since increased my international allocation from 8 percent to 18 percent. I hold VGK, EWJ, and have added the Vanguard FTSE Emerging Markets ETF, VWO, as a replacement for the EEM position I sold. The dollar may strengthen again, and when it does, these positions will suffer. That is the trade-off. You accept currency volatility in exchange for diversification benefits that are invisible during bull markets but invaluable during the periods when everythin else in your portfolio is dropping. I almost absorbed that lesson the hard way. The phone call from my mother saved me. Thanks, Mom.