The Weekly: A few thoughts on the greenback

Friday, Jul 1st 2022

Commentary

Welcome to The Weekly, where our team shares a few thoughts to take you into the weekend.

To our readers, Happy 4th of July Weekend! The 4th of July marks our independence from Great Britain in 1776. While it would take a few more decades for the U.S. to establish the dollar via the “Mint Act” of 1792, our currency is something worth diving into this week. 

A few thoughts on the greenback

Yes, inflation is at 40-year highs and consumer sentiment is at record lows, but against all odds, our resilient dollar has steadily risen to 20-year highs. Amidst global turmoil, investors have flocked to the safe-haven currency: the mighty US dollar. The result is a strong buck relative to other currencies worldwide. Amidst stateside erosion, the dollar’s value is growing abroad, appreciating 22% against the Yen and 15% against the Euro. In short, a strong dollar makes American products more expensive overseas. It’s somewhat of a silver lining: for American consumers battling rising prices because of stubbornly high inflation, foreign goods and services appear comparably cheaper.

The implications of such a strong dollar are far-reaching. Countries that hold American debt, many of which are emerging economies, are now paying a premium as the cost of their liabilities increases relative to their previous payments.

In recent weeks, American companies that conduct significant business overseas have lamented that the strong dollar is eating away at profits. Several large companies including Microsoft, Salesforce, and Costco cried foul at the robust dollar. Furthermore, for those with international manufacturing plants, an asymmetrical exchange rate may cause corporations to retire operations in the U.S. in favor of manufacturing plants in  countries where costs are now cheaper.

Macro worries aside, for American consumers who recently canceled a cross-country road trip due to high fuel prices, maybe now is the time to take an international vacation instead. Airline prices may be up, but doesn’t a $5 Tuscan ribeye and a $3 Chianti sound enchanting? 

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Have a great weekend!

Titan Team

The above content and projections are the opinion of the authors. Any conclusions or takeaways are their own. This should not be considered as investment advice. Investing involves the risk of loss and returns are not guaranteed.

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