Can The U.S. Dollar Continue Its Rise?
In our Q1 edition of Portfolio Matters, we spent some time discussing the impact that the strong dollar has had on economies and investments around the world. In this post, we’ll cut right to the bottom line.
The U.S. dollar is on an unprecedented tear, having appreciated against a basket of foreign currencies by 9.1% in the last 3 months and by 14.5% in the last 6 months. This marks the U.S. dollar’s biggest quarterly gain since September 2008 and the 4th largest 6-month gain in nearly 50 years. (Statistically speaking, both the 3-month and the 6-month gains are both 2 standard deviation events.)
History teaches us that when asset prices (or in this case, currencies) move this quickly, they often disconnect with their underlying value, and we think this holds true for the U.S. dollar. In fact, of the 5 key indicators we monitor regarding the U.S. dollar, 4 are now flashing a warning sign.
At the risk of putting it too simply, we’re seeing signs that “what goes up must come down.” Over time, we expect more normalized, if not, declining trends for the U.S. dollar.