The US dollar remains strong – but is it very powerful?


The dollar is up to 4.5% by 2018 against other major global currencies, including the euro, the yen and the pound.

Few investment experts expect a lot to change for the dollar after Tuesday's midterm elections. This is partly because trade policy will probably not change even if the Democrats win the House. And interest rates will continue to rise – boosting the dollar with them.

A strong dollar is a sign of a strong economy. But it also comes with possible consequences.

The continued strength of the dollar could be completed and lead to greater volatility in the stock market. The strongest dollar is a problem for many big US companies because it reduces the value of their international sales and profits.

Hasbro (HAS), Harley-Davidson (HOG), manufacturer Huggies Kimberly-Clark (KMB) and owner Gillette Procter & Gamble (PG) have warned the dollar is hitting their effects.
So are the industrial companies 3M (MMM) and Caterpillar (CAT) and Big Pharma giant Pfizer (PFE).

The strongest dollar can also cause problems to large US home businesses because it helps products from abroad cheaper.

Why the strong dollar is so bad for business
On the other hand, American products are now more expensive on international markets due to the stronger dollar. This is a particular concern for giant hardware technology companies such as Apple (AAPL).

"These major technology companies are world-renowned global corporations," said Jonathan Curtis, a portfolio manager with the Franklin Technology Fund. "If interest rates rise and the dollar follows suit, it reduces the purchasing power of their foreign customers."

JJ Kinahan, market strategist for TD Ameritrade, admitted that a stronger dollar is a problem. But he believes that the benefits of less expensive imports for US consumers and retailers can offset the profit that multinationals have to make. A healthier US consumer could keep the economy alive.

The strength of the dollar could be reversed

Some warn that the strength of the dollar in conjunction with the policies of the trade war could put an end to the economic power of America.

"Regardless of the composition of this House, the President can still influence a policy such as trade agreements with the issuing of executive orders. The prospect of tariffs and a strong dollar is a threat to global growth, "writes strategic strategist OppenheimerFunds Brian Levitt in a recent report REPORT.

Profits near the top?

If the dollar continues to rise, it could squeeze not only China but also fragile emerging markets such as Turkey, Argentina and Indonesia, which have debt in dollars.

"As US economic growth slows down and global growth slows, the market may see continued growth as a bearish effect that would drive the dollar higher, leading to further tighter economic conditions outside the US and worsening emerging market vulnerabilities "Nixon, head of investment division of Northern Trust Wealth Management, in a report.

The strength of the dollar could prove to be the overthrow of many other economies around the world – and that could eventually slow the US too.

Where's the Trump?

Trump's positions on the dollar have shifted many times during his presidency.

For example, Trumbe claimed in January that he wanted a strong dollar, contrary to Finance Minister Steven Menchin's comments on how a weaker dollar would be good for the United States.

But more recently, Trump expressed his sorrow for the strength of the dollar – especially as the Federal Reserve raised interest rates, a move that further raises the value of the dollar. In July, he insisted that Europe and China "manipulated" their currencies.

By avoiding a significant economic slowdown, the Fed is expected to raise interest rates again in December and several times in 2019. This should further increase the value of the dollar.