So how is a stronger dollar likely to impact the major asset classes? Historically, a stronger dollar has helped corporations in Europe and Japan, as a weaker domestic currency translates into stronger earnings. This is likely to be particularly true for Japanese companies, which are levered to global trade.
On the flip side, a stronger dollar represents a modest headwind for U.S. profitability and by extension, U.S. earnings growth. Emerging markets, meanwhile, are even more vulnerable. A strong U.S. dollar hurts countries dependent on foreign funding, and as those countries prop up local currencies by selling dollars, this effectively tightens local monetary policy. In particular, I would watch out for countries in Eastern Europe.
Finally, a strong dollar is deflationary and therefore negative for inflation hedges, most notably gold.
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.
Source: Bloomberg