But something strange is happening during this ascent. The dollar now appreciates against the currencies of wealthy countries more than against those of emerging countries.
Investors looking for big returns on government debt often look to risky developing countries that pay high interest rates. When the Federal Reserve raises interest rates, investors find that they can take that payout risk-free and move their money to the US instead. This boosts the dollar, but also plunges developing world currencies.
The Fed’s trade-weighted dollar index, which measures the value of the US dollar based on its competitiveness with trading partners, has risen 10% this year against other developed world currencies, its strongest level since 2002. The dollar has risen by comparison. Only 3.7% against emerging market currencies.
Bad for Business: Globally active S&P 500 companies will also have to contend with a strong dollar that is hurting earnings growth. According to Krosby, about 30% of the S&P 500 companies’ revenues come from markets outside the United States. At the end of the financial year, many companies said the strong dollar was already hurting their sales growth.
LPL Financial estimates that the stronger dollar took 2-2.5 percentage points off the S&P 500’s earnings in the second quarter.
To the point: Crosby said the dollar should stop accelerating once the Fed stops raising rates. But there are external forces that can keep the US dollar high even after the FOMC is over. It also reflects investor concerns about the impending recession in Europe. They are flocking to their safe haven, the dollar, at least for now. Expect the USD to stay strong for some time.
What the Federal Reserve does not say out loud.
The Federal Reserve is notorious for being cautious with its words. Billionaire investor David Rubenstein has some thoughts on what central banks really want.
“He can’t say this for sure, but if unemployment goes up to 4%, 5% or 6%, inflation will [probably] Rubenstein spoke of Powell, whom he hired a quarter century ago to work in private equity. It seems politically unappealing to say that. ”
“Many jobs will be lost. The Fed is not going to say publicly, ‘We want to lose jobs,'” Rubenstein said.
Mr. Rubenstein said Mr. Powell was “a very smart, hard-working man” but underestimated how bad inflation could get. There’s something to think about: “Alan Greenspan was almost a god. Paul Volcker was almost a god. But these people put their pants on one leg at a time. They make mistakes.”
Keeping up with private equity
Only one person can take Jerome Powell’s current notoriety away: Kim Kardashian. Now she has entered his territory and is coming to Wall Street.
Momage to the stars, Kris Jenner will also join SKKY as a partner.
I hope in our future there will be a spin-off where Kim takes on the reality of Wall Street.
today too →
▸ Fed Chairman Jerome Powell will speak at the Kate Institute at 9:10 am ET.
▸ European Central Bank Interest Rate Decisions.