The US dollar is strengthening Heres whats driving the rally and what it means for Americans CNN Business

That could potentially lead to a disastrous downgrade to America’s credit rating and could send the dollar spiraling as investors start to sell off their US assets and move their money to safer currencies. And around 30% of all S&P 500 companies’ revenue is earned in markets outside the US, said Quincy Krosby, chief global strategist for LPL Financial. In conclusion, while the question of whether the U.S. dollar will collapse in 2024 remains open to debate, the factors influencing its fate are multifaceted. The looming specter of an economic crisis in 2024 could have a significant impact on the U.S. dollar. These are the five reasons Yardeni expects the US dollar to strengthen through the rest of this decade.

Why the FT?

• In times of economic uncertainty, the U.S. dollar often becomes a safe-haven asset.
• Hiring remains solid, having notched its 32nd consecutive month of growth in August.
• In this election year, both the Fed’s moves in the near term and whether its independence could be at risk from White House influence in the future have captured market interest.
• Speculation about the potential de-dollarization of global trade rose again last month after the Chinese-led expansion of the BRICS group of nations to include major oil producers, such as Saudi Arabia.
• Europe’s official statistics agency Thursday revised down its estimate of GDP growth for the 20 countries sharing the euro from 0.3% to 0.1% for the second quarter of this year.
• Kroger (KR), Costco (COST) and Anheuser-Busch (BUD) all report earnings on Thursday.

It’s not necessarily bad for other economies because if you have a weaker currency, that should help your exports, and that’s the way the global economy re-balances. However, the strong dollar is not an exogenous shock, it is an endogenous reaction of the market to the fact that the US is doing better than the rest. city index company profile Understanding these complex interactions will be key to forecasting the dollar’s trajectory in the global economy.

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Rogoff wondered out loud whether Davos attendees might be discussing the dollar’s weakness and the US economy’s collapse a couple of years from Theory of reflexivity now. “I would guess it’s not good for the dollar; you want people to use your currency,” Rogoff said. “If you’re being threatened, I think that only reinforces the incentive to try and diversify into doing other things.” The Harvard University economist flagged several challenges ahead during a session focused on the dollar at the World Economic Forum’s annual meeting in Davos, Switzerland on Tuesday.

The U.S. dollar’s role as a safe-haven asset in recession scenarios underscores its resilience and the complexity of its response to global economic trends and Federal Reserve policies. While US consumers may benefit from a stronger dollar via increased purchasing power, international companies typically see suppressed profits as they convert their foreign earnings derived from different currencies into fewer US dollars. Even with the factors supporting the dollar, its ascent is unlikely to continue indefinitely. Currently, the dollar is two standard deviations above its 50-year average, suggesting limited room for further appreciation. Historically, the dollar has alternated between periods of strength and weakness, making a downturn likely at some point, though the timing is uncertain. Additionally, the U.S.’s persistent trade balance deficit, at 4.2% of GDP as of September 2024, poses a long-term constraint, highlighting a structural challenge that could eventually pressure the currency.

Federal Reserve’s Role

Ultimately, the resilience and how to invest small amounts of money wisely adaptability of the dollar amidst these challenges will be a testament to its enduring role in the world’s financial system. With those issues in the rearview mirror, the US economy should bounce back, adding yet another catalyst for the dollar to gain. The US dollar will surge through 2030, according to market veteran Ed Yardeni, who says the growing narrative of de-dollarization is overblown.

Fed Independence and Intervention

• The company said higher prices squeezed sales and forced it to mark down some products to entice shoppers — which hurt its profit margin.
• But Yardeni believes the market got ahead of itself when it comes to interest rate cuts, and if that’s the case, the US dollar should strengthen.
• The greenback — which is not just the dominant global currency but also “the key variable affecting global economic conditions,” according to the New York Federal Reserve — reached a 20-year high last year after the Fed turned hawkish with its aggressive rate hikes.
• Even with the factors supporting the dollar, its ascent is unlikely to continue indefinitely.
• And around 30% of all S&P 500 companies’ revenue is earned in markets outside the US, said Quincy Krosby, chief global strategist for LPL Financial.
• On Monday, the dollar index experienced its largest drop since November 2023, retreating from near two-year highs as the president refrained from enacting broad-based tariffs on his first day in office.

The increasing divergence in global growth has led to a greater disparity in central bank policies worldwide. As a result, the gap between U.S. 10-year bond yields and those of its key trading partners has widened to its highest level since 1994. The move surprised investors, as an emergency order would have allowed immediate tariff increases in contrast to the alternative process of investigations, which is likely to take longer to complete. Instead, Trump issued a memorandum on Monday directing federal agencies to evaluate US trade policy, which could eventually lead to blanket tariffs across a variety of trading partners down the line.

Despite these shifts, the dollar’s dominant position as a reserve currency has not seen substantial change. Its role in global financial markets and transactional purposes remains significant, further solidifying its position. For a detailed analysis, you can refer to Charles Schwab’s Insights on Dollar’s Reserve Status. The rally comes after months of volatility, fueled by concerns that the dollar may be losing its status as the world’s reserve currency. Speculation about the potential de-dollarization of global trade rose again last month after the Chinese-led expansion of the BRICS group of nations to include major oil producers, such as Saudi Arabia. From the Federal Reserve’s monetary policies to global economic indicators and geopolitical shifts, each plays a significant role in shaping the dollar’s future.

The Role of the Federal Reserve and Monetary Policy

Gold prices maintain the bid tone near their record top at the end of the week, helped by the intense weakness around the US Dollar, alleviating concerns surrounding Trump’s tariff narrarive, and a somewhat more flexible stance towards China. Europe’s official statistics agency Thursday revised down its estimate of GDP growth for the 20 countries sharing the euro from 0.3% to 0.1% for the second quarter of this year. “Ultimately, it’s going to be a race between the realities of what President Trump inherits and the extent to which certain policies could make things more complicated, like tariffs,” he said. “The message is this is not a one-day event,” he said, noting both upside and downside risks exist. The company also reported $9.37 billion in revenue and earnings per share of $5.28 for the first quarter, beating Wall Street’s estimates, according to FactSet.

West Texas Intermediate Oil price halts its six-day losing streak, trading around $74.40 per barrel during the Asian hours on Friday. Crude Oil prices are on track for a weekly decline after US President Donald Trump announced a comprehensive plan to increase US production and called on OPEC to lower crude Oil prices. A strong dollar reduces the earnings of U.S. multinationals—many of the country’s largest companies—whose international sales are worth less once converted to dollars. These companies’ stocks tend to suffer without a countervailing source of growth or optimism. The People’s Bank of China has cut key interest rates on mortgages and on its lending to banks in recent months to help boost demand for credit. “A stronger dollar is likely to add to a recurring phenomenon into earnings season — an increase in dispersion of earnings per share (EPS) revisions,” Morgan Stanley analyst Mike Wilson wrote in a note to clients last week.