The US dollar is king again Heres why CNN Business
USD/JPY has stalled its recovery from over a one-month low early Thursday. It is also because every time you have a shock on the geopolitical side, there is this flight to quality components, which helps the dollar. March was the third straight month of hotter-than-expected inflation readings. Inflation overall has recently been pushed up by climbing gas prices and stubbornly elevated housing costs. Industrial production in Germany fell for the third-straight month in July, official data also showed Thursday, adding to a cocktail of woes for Europe’s largest economy. Europe’s official statistics agency Thursday revised down its estimate of GDP growth for the 20 countries sharing the euro from 0.3% to 0.1% for the second quarter of this year.
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Hiring remains solid, having notched its 32nd consecutive month of growth in August. “Rumors of the US dollar’s demise continue to be greatly exaggerated,” James Athey, investment director at Abrdn, an asset manager, told CNN. The index is also available to investors indirectly as part of exchange-traded funds (ETFs) and mutual funds. It reached an all-time high in 1984 at nearly 165, and an all-time low of around 70 in 2007. In the years since then, the U.S. dollar index has been relatively range bound, fluctuating between 90 and 110. The index has only been updated once, in 1999, when the newly-created euro replaced the German mark, French franc, Italian lira, Dutch guilder, and Belgian franc.
- Early this week, I had the privilege of moderating a panel discussion on global grain supply and demand and outlook at Barchart’s Grain Merchandising & Technology Conference in Orlando.
- Hiring remains solid, having notched its 32nd consecutive month of growth in August.
- The Fed has already raised the fed funds rate to a range between 3% and 3.25%.
- The dollar started to cool in the final quarter of 2022 as the Federal Reserve hammered rising inflation with interest rate increases.
- When the U.S. dollar is used as the base currency in the example above, the exponent’s value is positive, such as with the Japanese Yen, Canadian Dollar, Swedish Krona and Swiss France.
The ProShares UltraShort Euro (EUO) is designed to generate daily returns equal to double the inverse of the daily performance of the euro versus the U.S. dollar. In the past year, the USDX has climbed 17.3% from around 94 to above 110. John Lynch, chief investment officer for Comerica Wealth Management, says the rapid strengthening of the dollar in 2022 has a number of causes that pose big challenges for investors and central banks around the world. The Federal Reserve established the dollar index in 1973 to track the value of the U.S. dollar. Two years earlier, President Richard Nixon had abandoned the gold standard, which allowed the value of the dollar to float freely in foreign exchange (forex) markets. Some U.S. companies are blaming the strong U.S. dollar for lackluster earnings, while economists say it’s helping the Federal Reserve’s ongoing fight against high inflation.
What Currencies Are in the USDX Basket?
The good news for investors is a strong dollar can continue to benefit certain stocks that generate limited international revenue. Bank of America recently screened for S&P 500 stocks that have historically had the most positive correlation to the strength of the dollar over the past decade. U.S. investors typically measure the value of goods, services and investments in dollars. A strong dollar reflects an increase in the dollar’s value relative to other currencies around the world. The index is affected by review manias, panics, and crashes macroeconomic factors, including inflation/deflation in the dollar and foreign currencies in the basket, as well as recessions and economic growth in those countries. In theory, the direction of the moving average (higher, lower or flat) indicates the trend of the market.
Understanding the USDX
Investors can also monitor how strong the dollar is relative to specific currencies. The dollar started to cool in the final quarter of 2022 as the Federal Reserve hammered rising inflation with interest rate increases. This fundamental information helps me understand what reports and indicators the economists of the world believe will shape future events. For the major indices on the site, this widget shows the percentage of stocks contained in the index that are above their 20-Day, 50-Day, 100-Day, 150-Day, and 200-Day Moving Averages. The company also reported $9.37 billion in revenue and earnings per share of $5.28 for the first quarter, beating Wall Street’s estimates, according to FactSet.
Dollar Index expresses the value of the dollar in relation to a basket of currencies. Professional investors use futures and options contracts to invest in the Dollar index. ICE offers dollar index futures for trading 21 hours a day on their platform. The exchange also offers USDX options contracts with six different expiration dates, ranging from one month to one year in the future. Tech stocks have the largest overall exposure to international markets of any S&P 500 market sector, with overseas revenue representing 59% of total sales, according to Goldman.
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Finally, investors can indirectly bet on the U.S. dollar by betting against weaker international currencies. The ProShares UltraShort Euro (EUO) is an ETF that’s designed to provide -200% of the daily performance of the euro against the U.S. dollar. DataTrek forex broker Research co-founder Nicholas Colas says a strong dollar makes life particularly difficult for tech stocks, which generate about 58% of revenue outside the U.S. The New Highs/Lows widget provides a snapshot of US stocks that have made or matched a new high or low price for a specific time period. Stocks must have traded for the specified time period in order to be considered as a new High or Low. Inflation or deflation of any currency, monetary policy, geopolitical conflicts, and export/import ratios, just to name a few.
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To track the value of the dollar in this new world, the Federal Reserve set find programmers for startup up the U.S. When the U.S. dollar is used as the base currency in the example above, the exponent’s value is positive, such as with the Japanese Yen, Canadian Dollar, Swedish Krona and Swiss France. When the U.S. dollar is the quoted currency, the exponent’s value will be negative such as with the Euro and British Pound. The WisdomTree Bloomberg US Dllr Bullish ETF (USDU) is another dollar fund that tracks the Bloomberg Dollar Total Return Index, an alternative to the dollar index. USDU is smaller and less liquid than UUP, but it charges a lower expense ratio of just 0.5%, compared to 0.77% for UUP. Traders should make sure they fully understand how these derivative contracts work and the risks involved before they buy.
That type of leveraged and inverse fund can help traders generate sizable short-term returns, but they are not designed to be held as long-term investments. Investors willing to take on more risk for more potential upside can also directly buy U.S. dollar futures or options contracts. Any investor trading these types of derivatives should understand how they work and the risks involved. John Lynch, chief investment officer at Comerica Wealth Management, warns that investors shouldn’t expect the dollar to weaken anytime soon.