The writer is the former chief investment strategist at Bridgewater AssociatesAfter steadily marching to a secular peak against a basket of its key trading partners last fall, the US currency has been quickly declining.

Moderating expectations for US interest rates explain much of this about-face, but not all. Indeed, to understand the most recent dollar weakness — and more importantly, where it is likely to be headed next — events outside the US will matter as much or more than what happens within its borders.

It all comes back to the dollar’s unique standing in global currency markets, which allows it to appreciate in two opposing environments. In part because of its global reserve currency status, it does well when the world is not doing well. In that scenario, investors want the relative liquidity and safety of US assets, especially Treasury bonds. This even tends to be the case when such shocks are home grown, as was the case after the US debt ceiling crisis in 2011.