(Note, I have been known to be a U.S. dollar bull—but there are not many who are claiming 85 cents on the euro.)
Chandler said that on a broad, trade-weighted index measured after inflation, the U.S. dollar currently is up only 12% from its lows set in 2011. He thinks when this cycle is over, there will be a 25%–30% increase in the dollar’s value. From this perspective, the U.S. dollar cycle would just be getting started and may be less than halfway there.
Rising Dollar Creates Tightening for the Fed
I have been discussing how the rising dollar would take some of the heavy lifting away from the Fed in its tightening monetary policy and that we may not see such aggressive hikes this year from the Fed. Chandler has a back-of-the-envelope model that says the moves we’ve seen in the dollar so far correspond to a tightening of policy by 40 basis points. So while there is a divergence between central banks, the dollar is doing some of the Fed’s tightening for it.
Important Risks Related to this Article
Foreside Fund Services, LLC, is not affiliated with Brown Brothers Harriman. Investments focused in Europe are increasing the impact of events and developments associated with the region, which can adversely affect performance. Investments in currency involve additional special risks, such as credit risk and interest rate fluctuations.