The greenback has been grinding higher this year in what could be its best annual performance since 2010 according to Sam Stovall of S&P Capital IQ. He attributes some of that momentum to global investors who are positioning themselves to capture future growth in high quality companies.
“The larger cap issues tend to do better during a rising dollar primarily because those investors from overseas are looking for the more liquid large cap names and pretty much ignoring the smaller cap names.”
To Stovall’s point, the S&P 500 has gained 8.4% this year compared to a 4.2% drop for the Russell 2000. In commodities, the stronger dollar slammed crude oil, which fell 13% during the third quarter.
King dollar is likely to maintain its dominance against major counterparts, especially the Euro, through next year, according to Stovall.
“We could see the dollar versus the euro get to about 1.25 this year and average 1.20 for all of next year. I wouldn’t say that is a brave forecast but at least it gives you an idea of were the direction is, right now momentum seems to indicate strength or at least the holding of these levels is likely.”
The European Central Bank is mulling options to revive the Eurozone’s struggling economy. The next scheduled meeting of the ECB is October 2, 2014 in Naples, Italy.