Should a Strong U.S. Dollar Make You Happier

Should a Strong U.S. Dollar Make You Happier?

The U.S. dollar is flexing its muscles. So far this year, the U.S. Dollar Index has gained 10% and is near a 20-year high.1 So is a strengthening dollar a good thing for your wealth?

Published by Motley Fool Wealth Management Fri, Aug 12, 2022

read time 5 min read

Book an introductory appointment with one of our experienced Wealth Advisors to learn more about our unique investment solutions, and how a holistic financial plan can help you potentially attain your financial goals faster and more reliably.

The U.S. dollar is flexing its muscles. So far this year, the U.S. Dollar Index, which tracks the dollar against six other currencies, has gained 10% and is near a 20-year high.1 So is a strengthening dollar a good thing for your wealth?

The concept of a strong dollar is hard to understand. One reason is that it’s not an individual currency phenomenon. Instead, it’s more like a tug-of-war: If the dollar strengthens, another currency—like the euro or Yen—must weaken.

Another reason is that a strengthening dollar is not good or bad. It depends on your perspective. What does that mean? Of course, the answer is not straightforward (shocking—what part of economics is?). But all else being equal, this chart can help explain some of the potential positives and negatives.

So, a strengthening dollar is a double-edged sword—it may give you access to cheaper foreign goods and the ability to buy more for less when you travel overseas. But, it could hurt America’s competitiveness, which may ultimately decrease U.S. economic growth.

ProConV2How could rising rates impact the dollar strength?

Investors, especially foreign governments, need to put their money somewhere. So, they usually invest in the safest, highest-yielding instruments available. Often, that has been U.S. government bonds.

Rising rates in the U.S. usually mean treasury bonds offer higher yields. So, foreigners may buy U.S. bonds (in dollars) which may continue to strengthen the U.S. dollar.

Back to Insights home
sign up today

Like what you're reading?

Join the thousands of readers getting stories like this delivered straight to their inbox every Thursday — for free. Give it a spin, enter your email to sign up.

Footnotes

1U.S. Dollar Index (DXY), Aug. 12, 2022

Next steps to consider

Create your Investor Profile

Create your Investor Profile

Let's see what we'd recommend for you. Create your Investor Profile online right now — for free. It's secure and only takes 10 minutes.

Create your profile
Schedule a call

Talk to a Wealth Advisor

Schedule a 30 minute call with one of our Wealth Advisors and get a financial roadmap at no cost or obligation.

Pick a time
6 Sources of Retirement Income

Download our latest special report

6 Sources of Retirement Income: Must-read tips and tricks we believe all retirees should know. Download your copy today – for free.

Get your copy