According to reports, the dollar is in the middle of its biggest rise in 40 years.
With the U.S. economy consistently improving, the dollar recently hit a 12-year high against the euro, and is also rising against almost every other major currency in the world. With Australia, Chile, Canada, Denmark, Egypt, Thailand, Israel, Peru and Poland amongst a list of countries cutting rates, and the U.S. Federal Reserve poised to raise them, the value of the dollar has risen significantly. As a result, investors are getting better returns in the U.S. than in other countries – though many are concerned about the possible rise in interest rates.
“It's sort of a vicious circle,” City National Roschdale Chief Investment Officer Bruce Simon said. “We've got the stronger economy in the U.S., especially relative to the rest of the world, leading to concerns about the Fed raising rates.”
If the Fed raises rates in June, the dollar would continue to shoot up and, according to the Washington Post, “put even more of a crimp in the recovery by making it harder for U.S. companies to sell exports overseas and compete against imports at home.”
Though analysts believe that the rising dollar could delay a rate hike because, as the L.A. Times reported, “a strong currency tends to keep inflation in check by making imports cheaper,” markets are still anticipating one in June.
“Interest rates are the gorilla in the room,” Dunvegan Associates Chief Investment Strategist A.C. Moore said. “Tell what interest rates are going to do, and I'll tell you what the market is going to do.”