These are rocky times for most investments. But it has been a wonderful stretch for the dollar.
You may not have noticed if you haven’t traveled abroad and exchanged dollars for euros, yen or nearly any other major currency. But many currency traders, S&P 500 company executives and economists certainly have.
The U.S. Dollar Index, which tracks the dollar against six other important currencies, is hovering at levels it hadn’t reached in 20 years. Since the start of the year, it has gained 8 percent; in the last 12 months, it has risen 14 percent. Against the Japanese yen, the dollar has risen more than 13 percent this year alone.
The Federal Reserve’s latest moves to tighten monetary conditions are likely to spur the dollar further. Fed policymakers decided on Wednesday to raise short-term interest rates half a percentage point and to begin reducing the bonds on its $9 trillion balance sheet in June.
Continuing interest rate increases are likely in the Fed’s efforts to bring down inflation. While rising rates can be expected to make stocks, bonds and mortgage rates more volatile, there’s an excellent chance they will burnish the dollar.
Fundamentally, a flood of foreign money into U.S. businesses and investments has been driving up the value of the dollar.
