We rarely worry about whether the dollar is strong or weak relative to other foreign currencies unless we have plans to travel abroad and need euros, yen, or pesos (although we’re not doing much of that lately). Even so, moves in the dollar can affect your port folio in surprising ways. After a decade of nearly uninterrupted gains, the dollar sank precipitously all summer against a basket of foreign currencies. The greenback stabilized in September, however. Overall, since the start of the year, the dollar is lower by only 3%.But many strategists expect the U.S. currency to fall into a more persistent decline over the mediumtolong term, thanks in part to low-interest rates that the Federal Reserve has signaled will stay low for at least three years. “Mounting budget deficits, an expanded Federal Reserve balance sheet and an increased money supply” are weighing on the dollar, too, says Chao Ma, a global strategist at Wells Fargo Investment Institute. “We expect the U.S. dollar to stay in a structural bear market.” A weakening dollar can be good for certain investments. The U.S. companies that generate a significant chunk of revenues abroad will get a boost from the weaker dollar as money made overseas is converted into greenbacks. When the buck is weaker relative to the euro, for example, the profits that sporting goods giant Nike make in Europe will translate into more dollars when the firm repatriate those earnings. U.S. firms that export products overseas gain from a weaker dollar, too, because their goods become relatively less expensive for customers overseas.
This story is from the December 2020 edition of Kiplinger's Personal Finance.
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This story is from the December 2020 edition of Kiplinger's Personal Finance.
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