July 8, 2022 · less than 3 min read
Market volatility is driving the dollar higher and higher.
Flight to safety
The flight to safety has become a bit of a theme for investors this year. With market volatility the norm, and interest rates and inflation biting, the US dollar has been flying high. The dollar against the euro reached a 20-year high in recent days, living up to its reputation as one of the safest investments in the world.
And it’s not just a flash in the pan. Analysts are saying the dollar may sit at high levels for three months or more, reflecting the challenging global picture ahead.
Around the world
Relative to the USD’s 12% appreciation this year alone, the euro, GBP, and yen aren’t close to riding the same wave. These currencies are all down double digits this year, having waited a little longer before stepping in to cool inflation.
So, how can you use changing foreign currency dynamics to your benefit? The reality is that global investing is in a complicated place. As Lisa Shalett, Chief Investing Officer at Morgan Stanley, has pointed out, surges in USD typically result in a rise in commodities. Only that hasn’t happened this time. The normal investing playbook during times of a strong USD doesn’t seem to be working.
Investors need to be cautious. Importing from abroad might be more attractive at the moment, but that also means US exporters may be in for a rough ride. At the same time, it’s extremely unlikely that the dollar will stay at its current highs, meaning that global currencies could see a quick recovery later in the year. It’s best to tread cautiously when navigating global markets at the moment.
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