Money For the Rest of Us: Why Is the US Dollar So Strong? Will It Continue?

The US dollar is trading at its highest level in decades, as measured against other currencies. It’s now stronger than the Euro, which has dropped under $1.00 for the first time in 20 years. And the British pound traded close to parity with the dollar, hitting a low of just under $1.04 before moving higher.

A strong dollar creates some big challenges for the rest of the world, given the dollar’s prevalence in global trade.

It’s a sign of investors moving into the dollar out of a sense of safety, at least relative to other currencies. And it goes to show that the Federal Reserve is being aggressive with its interest rate hikes compared to other countries. Perhaps even overly so.

With rising interest rates, the US dollar looks more attractive as a global store of value. That tends to also mean that risky assets don’t look as attractive given the comparative returns on interest-bearing assets like bonds.

That’s why asset prices have been under pressure as interest rates have started to rise. And why they’ll continue to be in a downtrend until the Fed pauses or changes course. That would also help reverse the dollar’s strengthening trend.

Investors may not like today’s high inflation. But with rising bond yields and inflation potentially coming down quickly in the next few months, bonds have become attractive as an investment.

To listen to the full podcast with the implications for a strengthening dollar, click here.