The second point to note is that many investors are worried about what happens if the dollar becomes too strong. This is a reasonable concern as a rising dollar is a de facto monetary tightening. However, fears should be allayed by the fact that the dollar’s recent ascent looks modest relative to its longer-term decline. Even after the latest rally, the dollar has only returned to where it was in 2006; it is still down about 30% from its peak reached in the summer of 2001. In effect, the dollar is simply back near the upper-end of a 20% trading range that has defined currency markets for most of the past decade.
For now, we believe that a stronger dollar is most relevant as headwind for commodity prices and as modest tailwind for U.S. consumer companies as well as European and Japanese exporters.
Source: BlackRock research.
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.