As the U.S. economy continues to rebound and stabilize from the 2008 Financial Crisis, the U.S. dollar has appreciated as of late. Expectations of the impending interest rate hike have driven the U.S. dollar higher, reflecting a confidence that the U.S. economy is growing and stabilizing. Overseas, investors around the world are flocking to the U.S. dollar in hopes it will increase more. For the average person, a strong dollar is most commonly associated with imports and exports. This means U.S. imports will become cheaper while exports will become more expensive. However, there is more to the story; a strong U.S. dollar can have widespread impacts on your foreign investments from the financial markets to capital outflows.
Financial Markets …show more content…
For many of the largest companies, resources and revenue is not only produced in the U.S. but overseas. As the greenback appreciates, this increases the production costs for multinationals and consequently eats into their profits. Likewise, companies operating overseas are paid in foreign currency and when that income is repatriated this means profits will be worth less. This in itself reduces the value of corporate profits and margins from overseas operations and at the end of the day reduces share prices. A strong U.S. dollar not only impacts domestic markets, but can lead to stagnant growth of emerging bond investments. When the dollar is strong, then the return on foreign bonds is likely to fall behind the returns on U.S. bonds. This is especially detrimental for emerging markets that lack the financial credibility and comparable returns than the United States. However, this does not mean you should remove all foreign investments from your portfolio, diversification is still fundamental to any portfolio and emerging investments have the potential to sharply increase where safe investments do