A Snapshot Of The U.S. Dollar

Bob Carey
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A Snapshot Of The U.S. Dollar

Posted Under: Conceptual Investing

View from the Observation Deck

We get asked from time to time what our take is on the U.S. dollar and where we think it may be headed next.
The dollar is still regarded as the world's primary reserve currency. Its relative strength over time can be influenced by such things as central bank monetary policy, geopolitics and trade.
U.S. investors with exposure to foreign securities, commodities and the stocks of U.S. multinational companies are particularly vulnerable to fluctuations in the U.S. dollar.
Predicting the direction of the dollar, or any currency, can be a daunting task, even for professionals who specialize in it. One thing we can provide is some context.
As indicated in the chart above, as of 2/28/20, the 10-, 20- and 30-year averages for the U.S. Dollar Index carried readings of 88.61 to 91.00, which is a relatively tight range.
When the Trump administration officially launched its initial round of tariffs on 3/8/18 targeting steel and aluminum imports the U.S. Dollar Index (DXY) stood at a reading of 90.18, in line with the historical averages.
To add some additional context, over the past 30 years, the index peaked at a reading of 120.90 on 7/5/01, while hitting a period-low of 71.33 on 4/22/08, according to Bloomberg. The 98.13 reading on 2/28/20 reflects strength, but is not extraordinarily rich.
The escalation of trade tariffs has played a significant role in the increased volatility in the markets and the rise in the U.S. dollar, in our opinion. In February 2020, the White House acknowledged that the Trump administration's trade policies depressed economic growth and business investment, according to Bloomberg.
The tariff conflict between the U.S. and China is 22 months old and counting.
In the current climate, which has grown more volatile due to the breakout of the coronavirus (COVID-19), the U.S. dollar provides a safe-haven destination for capital, in our opinion.

This chart is for illustrative purposes only and not indicative of any actual investment. Investors cannot invest directly in an index. The U.S. Dollar Index (DXY) indicates the general international value of the dollar relative to a basket of major world currencies.

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Posted on Thursday, March 5, 2020 @ 2:16 PM • Post Link

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These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.

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