The U.S. dollar has grown stronger despite President Trump’s trade war with China. Yet, a strong dollar makes U.S. goods abroad more expensive and makes it less expensive for U.S. companies to buy goods abroad. Thus, commodity prices will drop as most commodities are coming from foreign countries.
According to The Wall Street Journal, the ICE Dollar Index shows that the dollar is close to its highest level in over two years. One contributor to the strong dollar is the strong U.S. economy which let the Fed bring rate above borrowing costs in other countries.
Although investors believed that growth would pick up abroad and strengthen foreign currencies, that growth never occurred. Now, a gap in yields is expected to be maintained.
“There is nothing exceptional about U.S. growth, but it still looks pretty exceptional compared to other parts of the world,” said Alan Ruskin, chief international strategist at Deutsche Bank.
A strong U.S. currency makes it more difficult for U.S. exporters to stay competitive, as their products are more expensive abroad. Yet, it also makes investors more careful around emerging markets, leading them to reconsider their allocations. A strong dollar also allows the U.S. to import goods less expensively.
Although Trump was considering weakening the dollar, he decided against doing so.
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