Quick Thoughts: Why The U.S. Dollar Matters

Sep. 29, 2022 12:11 AM ETUUP, USDU, UDN

Summary

  • The US dollar has now been strengthening for 11 years now, making this the longest US dollar strengthening cycle in history.
  • Long-term trends in exchange rates typically reflect persistent differences in economic growth rates and returns on capital.
  • A strong US dollar tends to impart a global tightening bias to monetary policy.
  • For investors, in other words, the first important implication about US dollar strength is not that it redistributes growth from the United States to the rest of the world, but rather that it leads to tighter monetary conditions worldwide.

Financial Technologies - binary code background with dollar banknotes

Viorika

By Stephen H. Dover, Chief Market Strategist and Head of Franklin Templeton Institute

Originally published in Stephen Dover’s LinkedIn Newsletter Global Market Perspectives.


The US dollar has now been strengthening for 11 years now, making this the longest US

Chart - Exhibit 1: In inflation-adjusted ((real)) terms, the US dollar now stands nearly 30% above its 2010 levels.

Chart - Exhibit 2: US Equity Market Outperformed Other Major Markets

Chart - Exhibit 3: US current account deficit has begun to deteriorate again since 2019

This article was written by

Franklin Resources, Inc. (NYSE: BEN) is a global investment management organization operating as Franklin Templeton Investments. Franklin Templeton Investments provides global and domestic investment management solutions managed by its Franklin, Templeton, Mutual Series, Bissett, Fiduciary Trust, Darby, Balanced Equity Management and K2 investment teams. The San Mateo, CA-based company has more than 65 years of investment experience and over $908 billion in assets under management as of May 31, 2014. For more information, please call 1-800/DIAL BEN® or visit franklinresources.com.

Additional disclosure: Copyright © 2022 Franklin Templeton. All rights reserved.

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