The dollar’s rise and fall and its impact on the American equity markets are obsessively discussed as a driver of the economy. The good ole’ USA is unique in its financial plan to increase interest rates with additional hikes potentially in our future…
Global rate cuts, on the other hand, have caused a currency race to the bottom in an attempt to boost exports. The goal of a lower currency is to increase growth by selling more abroad. Negative interest rates are now the convention.
Truth be told – dollar value is relative. It buys Thai baht, Brazilian real, Mexican pesos, or any other foreign funds at an ever changing exchange rate.
The Dollar index is a basket of currency comprised of certain percentages of foreign counterparts. It is a portfolio to measure strength or weakness as a whole.
Six major currencies are in the Dollar Index representing 25 countries (The Euro-zone is comprised of 19 separate countries):
Euro Currency
Japanese Yen
British Pound
Canadian Dollar
Swedish Krona
Swiss Franc
Foreign currency seesaws with the U.S. dollar as one side must go up when the other goes down.
Mathematically, the Dollar Index is mostly an anti-Euro measure as it is comprised of almost 60% Euro currency.
A strong dollar is desired by importers to buy more of global goods. U.S. companies that depend on foreign markets for sales are often hurt when the dollar is in power.
