The U.S dollar (DX-Y.NYB) has been on a tear this year, and foreign currencies sliding against the greenback is causing trouble for countries with debt and trade invoices denominated in dollars.
As part of Yahoo Finance’s ongoing series, “What to do in a bear market,” we checked in with the experts on what the strong U.S dollar means for asset prices and how investors should position their portfolios.
Why has the dollar strengthened so much against other currencies?
So what’s pushing the dollar higher? “The dollar’s recent strength versus the Euro and the currencies of other developed nations has come from the U.S. being early in the global rate raising wave,” Russell Evans, managing principal and chief investment officer, Avitas Wealth Management told Yahoo Finance.
“Money flows for trade and wherever it can find the highest yield,” Evans added. “The U.S. Fed was quick to raise rates which makes the dollar a good place to park currency for institutions.”
How should investors in the U.S. position their portfolios given the strong US dollar?
“The strong U.S. dollar makes it more favorable to own U.S. assets,” Evans noted.
However, he added, there are headwinds against multinational corporations with a large amount of business overseas.
“The negative for a strong dollar is dollar-based assets are more expensive for foreign purchasers,” Evans said.
One alternative is to look toward companies doing more business domestically.
“Small- and medium-sized businesses tend to be more immune from a stronger dollar just in terms of sales because they tend to be more domestic,” Quincy Krosby, chief equity strategist for LPL Financial, told Yahoo Finance.
“That said many of them are subcontractors for multi-nationals. So you have to do your homework,” she said.