By Tim Courtney, Chief Investment Officer
The dollar has been consistently grinding higher for most of 2022 and is up 11% year-to-date.1 One reason it has performed so well against other currencies is the actions of the respective central banks. Although the Federal Reserve (Fed) didn’t move as quickly as it should have to curb inflation, it has been relatively aggressive with four rate hikes since March.2
Most other central banks have remained passive by comparison. The European Central Bank just announced its first rate hike in 11 years,3 on the heels of the dollar reaching parity with the euro for the first time in two decades.4 Meanwhile, the Bank of Japan is stubbornly keeping rates near zero5 despite the yen being down about 17% against the dollar year-to-date (YTD).6 The result is a surging dollar and its effects, aside from making foreign travel very attractive for U.S. citizens, can be seen in three key areas:
What has happened so far this year is an important reminder that as much as cryptocurrency can dominate financial news, the dollar remains the global standard for a store of value. A dollar itself doesn’t produce cash flows and obviously can’t be used, and as such, it’s only worth what someone else is willing to exchange for it. Thankfully, the world continues to demand U.S. dollars.
If you have questions about how the strength of the dollar impacts your assets, please contact your Exencial advisor.
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