How to Behave When the Dollar Remains Strong

September 7, 2022  |  Michael Reilly

Don’t make the mistake of not reading today’s message to investors… I know I’ve written to you more than once about this, but I’m doing it again because it’s that important!

The value of the U.S. Dollar (USD) is the strongest it has been in a generation. 

Now that may sound great to some, but it isn’t for most…

Developed economies are taking a huge hit from the dollar’s appreciation to multi-decade highs.

A strong dollar devalues global currencies, feeds inflation in other countries, and hurts global growth.

Which is kind of a problem when investors are already concerned about inflation and the prospects of a global recession.

And as long as the USD remains the world’s dominant currency, investors can expect it to rise in times of uncertainty – like now…

As central bankers around the world try to tame inflation in their respective countries, by raising interest rates, the U.S. Federal Reserve has been playing catch up with aggressive policy measures.

As a result, rates here in the United States are now higher than they are in many other developed economies.

Attracted by higher rates, investors are flocking to the USD, pushing it higher and higher.

But there’s more… 

Investors are going to find it very difficult to make money owning most stocks as long as the USD remains this strong.

You’re going to want to understand how this intermarket relationship works and how to use it to your advantage.

There is a strong negative correlation between the price of stocks and the value of the dollar.

In the chart below you can see this relationship at work. 

It’s Dollar up, stocks down. Dollar down, stocks up. It’s a thing…

When the USD peaked in 2016 and subsequently rolled over, stocks went on to have a long run higher.

But when the USD bottomed in 2018, what did stocks do? 

They stopped going up. Do you think that was a coincidence? Not likely.

Then, as the USD peaked in early 2020 and reversed lower, stocks reversed off their lows and went to have arguably their greatest 52-week period ever. 

Coincidence? Nope…

Do you see the pattern here?

Please don’t ignore this – it could be frustrating and costly to do so. 

As long as the U.S. Dollar continues to rise, stocks are likely to struggle. 

Invest accordingly.

Until next time…

To find out how Rowe Wealth can help you profit through whatever the market serves up next, schedule a free 1-hour consultation with us now.

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