Oct 3, 2022

The Dollar vs The World

Weekly Market Commentary

The dollar has soared to its highest level against the euro in 20 years. It has risen to its highest level against the Japanese yen in 30 years and recently hit a record high against the British pound, according to CNBC.

The U.S. Dollar Index is an index (or measure) of the value of the U.S. dollar relative to a basket of foreign currencies. As the graphic illustrates, the index is at a 20-year high.

What’s behind the surging greenback?

Interest rates in the U.S. have soared. Higher rates and talk of more rate hikes have attracted foreign cash that seeks a higher return.

Global uncertainty has also aided the dollar, as the dollar is the world’s reserve currency. The size and strength of the U.S. economy is unparalleled. The U.S. is still one of the safest places to park cash, and the dollar makes up a big share of foreign-exchange reserves.

Dollar strength advantages:

  • A stronger dollar lowers the cost of imports.
  • Global trade in commodities is usually priced in dollars. A strong dollar creates a headwind for commodity prices.
  • It’s a great time for U.S. tourists traveling overseas.

Dollar strength drawbacks:

  • A stronger dollar raises the price of exported goods, reducing competitiveness.
  • Overseas sales of U.S. companies must be translated back into a more expensive dollar, which pressures revenues and earnings.
  • A fast-appreciating dollar forces global central banks to react, which may create unwanted tensions in global finance. Emerging market economies may get hurt, too.

In the near term, the stronger dollar is probably being viewed favorably by Fed officials, at least privately, as fighting inflation is today’s aim.

Recently, investors are viewing the soaring greenback with apprehension, as some fret over tensions in global markets and added headwinds for earnings of firms that conduct a significant share of business overseas.

Reproduction Prohibited without Express Permission. Copyright FDP Wealth Management. All rights reserved. Advisory Services offered through FDP Wealth Management, LLC, a state Registered Investment Adviser and Valmark Advisers, Inc. a SEC Registered Investment Advisor. Securities offered through ValMark Securities, Inc., Member FINRA/SIPC. 130 Springside Drive, Suite 300, Akron, OH 44333-2431 800.765.5201 Prosperity Partners and FDP Wealth Management, LLC are separate entities from ValMark Securities, Inc. and Valmark Advisers, Inc. Prosperity Partners, FDP Wealth Management, LLC, ValMark Securities, Inc., Valmark Advisers Inc., and their representatives do not offer tax advice. You should consult your tax professional regarding your individual circumstances. Indices are unmanaged and cannot be invested directly in. Past performance is not a guarantee of future results.

Indices are unmanaged and do not incur fees, one cannot directly invest in an index. You should consult your tax professional regarding your individual circumstances. This information is provided by Financial Jumble, LLC. Financial Jumble, LLC is a separate entity from ValMark Securities, Inc. and ValMark Advisers, Inc.

RELATED POSTS

The Fed Delivers a Long-Awaited Rate Cut

To virtually no one’s surprise, the Federal Reserve slashed the target on its key interest rate—the fed funds rate—at the conclusion of its meeting on Wednesday. The only question regarding the decision was whether the Fed would cut by a quarter point (25 basis points [bp]; 1 bp = 0.01%) or 50 bp. They opted for 25 bp and a new range of 4.00-4.25%.

Last CPI Tees Up Fed Rate Cut

The only thing that might have been standing in the way between the Federal Reserve and a rate cut this week was last Thursday’s release of the Consumer Price Index (CPI). While the inflation figures weren’t particularly soft, August’s data didn’t reflect a sharp rise in prices either, all but guaranteeing that the Fed will move at Wednesday’s meeting.

No Hire, No Fire Economy

For starters, the title is a simplified five-word summary of the labor market. Recall that last week, we explored the low level of layoffs. This week, we shift the focus to hiring trends. But first, let’s take a closer look at the numbers from the latest jobs report.

Initial Claims and Economic Signals: What Investors Watch

Initial claims for unemployment insurance measure the number of people filing for unemployment benefits for the first time. The data is released weekly, making it one of the most up-to-date indicators of labor market conditions. It is a key economic indicator because it offers a real-time snapshot of the health of the labor market.

Heavy Data Week Offers Mixed Picture

Last week was packed with economic developments, as reports poured in from all directions. We saw the release of second-quarter Gross Domestic Product (GDP) figures, the broadest measure of goods and services produced, alongside the July jobs report.