Economics Investing

Strengthening USD

With all the trade talk and tariff concerns, it seems like the strengthening USD’s impact on earnings has been somewhat overlooked. The WSJ’s Daily Shot put out a chart last week of its Dollar Index (chart below) showing the strong upward trend in recent months. While tariffs have been getting most of the headlines, the strengthening USD has had more of an impact on earnings, naturally, given where we are right now.

From my perspective, it doesn’t appear the dollar’s rise will be stopping any time soon unless the Fed stops raising rates and probably more importantly stops shrinking its balance sheet. Both activities are effectively shrinking the global supply of USD which we discussed last week. Using basic supply/demand principles, it would appear USD will remain strong due to a diminishing supply.

It’s important to note thought that some very well-known and successful investors believe the USD’s upward move will halt and potentially even reverse course. They’re basing their opinions on the duration of USD rally trends in more recent years. Currencies can be tricky to predict, but a shrinking global supply of the world’s reserve currency seems to suggest continued USD strength for the foreseeable future.