As a result of increasing uncertainty in the Euro-zone and slowdown in the emerging economies, many investors are seeking refuge in the “safe” US dollar denominated assets. The Dollar has thus appreciated against all major currencies due to safe haven flows. A notable exception is Colombian Peso against which US dollar is down 8.7%.
| Currency | US Dollar Rise YTD |
| Argentine Peso | 4.2% |
| Australian Dollar | 3.5% |
| Brazilian Real | 10.6% |
| Canadian Dollar | 1.0% |
| Chinese Yuan | 0.7% |
| Colombian Peso | -8.7% |
| Euro | 3.8% |
| Indian Rupee | 5.0% |
| Japanese Yen | 3.3% |
| Russian Ruble | 1.7% |
| South African Rand | 4.7% |
| Swedish Krona | 3.6% |
| Swiss Franc | 2.7% |
| UK Pound | 0.4% |
The US Dollar Index is up 2.9% year-to-date and 10.3% in last one-year.
Considering that S&P 500 companies derive almost half of their revenues from outside of the U.S., the strength in the US dollar will affect their second quarter results. Technology, materials and industrials companies are expected to suffer the most due to their high foreign exposure. Global slowdown is already affecting the demand for products for these companies and their earnings.
While a strong currency is generally good for any country, especially in the long-run, it is not so much desirable when the economy is weak. Despite adverse fundamentals like growing deficit in the country, the US currency may continue to appreciate this year due to global uncertainty and its status as the world’s key reserve currency.
Do you think that the strength in the Dollar will hurt the economic recovery and the stock markets?
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