There are often conflicting signals on currency, and their cyclical nature means the consequences of a currency-positive signal often ends up being negative further down the line (for example, by pushing the currency so high that it becomes overvalued, becoming a ‘victim of its own success’). Nevertheless, it is worth covering some of the major points in play, and how these affect our thinking. Factors influencing the US dollarįorecasting currency movements is such an intractable challenge owing to the wide range of factors that need to be considered, the differing timescales involved and the difficulty in estimating the relevant magnitudes in advance. Indeed, the effect of tariffs is partly equivalent to USD depreciation, in that they artificially increase the cost of imports to reduce demand in favour of domestic producers.
It is this point that has helped to inflame the recent trade tensions in the US, where the US President has all but called for a weaker US dollar to promote trade. A strong USD can also exacerbate the US trade deficit, as US exports become less attractive and imports more attractive (that is, cheaper for US consumers). A strong dollar is generally bad news for emerging markets, where many governments and corporations borrow in USD rather than their own, less robust currencies. Trade-weighted US dollarĪs the US dollar is the world’s reserve currency, there are also indirect impacts which can have a very significant and fundamental effect on the economic outlook. The latest rally simply reverses some of the weakness we saw in late 2017 and early 2018, and the USD is some way off the post-election high we saw in December 2016, putting the USD in line with its three-year average level. The chart below shows the recent US dollar movement on a trade-weighted basis, putting the recent move in a broader context. Of course, the reverse is also true for US dollar weakening. We saw this in the UK following the EU referendum where sterling fell significantly, but many large, London-listed multi-nationals saw their share price surge on this translation effect. Similarly, non-US companies that generate a large portion of their profits in US dollars may see a translation benefit. The impact of a strong US dollarĬlearly a stronger US dollar has a direct impact on sterling-based investment portfolios, in that US equity and bond positions will register a gain on the currency. In this article we will examine some of the key factors and signals that influence the world’s primary reserve and trade currency, and how these affect our investment strategy. The focus is now firmly on the US dollar (USD), which has both direct and indirect impacts on the investment landscape, and the future path for the greenback is being hotly debated in investment circles. The difficulty with currenciesĬurrencies are notoriously difficult to successfully forecast with any regularity, and they can also have a significant effect on portfolio returns, particularly given the elevated volatility we’ve seen in developed market currencies recently. In this article we explore the key factors we consider in assessing the likely path for the greenback, which looks overvalued on some measures, but could easily get more expensive. Only risk is it isn’t the most stable country and economic issues only make that worse.The strength or weakness of the US dollar can have a significant impact on the global investment landscape. At an exchange rate of around 90 to the dollar I suspect it is even cheaper in US terms unless there has been a lot of inflation. It was easy to find beer for under $2, a meal with appetizer, steak and a glass of wine for around $20, etc.
I went to Cordoba (wonderful city) about 3 years ago w the exchange rate at around 50 to the dollar. Argentina, on the other hand, is VERY cheap. Iceland is pricey when I went (around 110 to a dollar) and even at this rate it is pricey but there are ways to minimize cost and the exchange rate definitely helps. This list is those countries where the US Exchange rate has gotten stronger and doesn’t represent itself at anything else.īTW – I have been to Iceland and Argentina.
I like the list and for the person complaining about cost in Japan – $40 for a cheap place to stay and $5 for a sandwich is a bargain! Also anyone can Google cost in a specific currency (either in their currency or with the current exchange rate) so don’t be lazy – do your own work.
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