What a Surging US Dollar Means for You

Despite downdrafts buffeting the US economy, the dollar is pushing in one direction: up.

It’s a surprising shift from last year, when Bitcoin was up, fiat was on the outs and the greenback was hitting lows it hadn’t seen in years.?

Now, the dollar is near its highest level in two decades versus major peers. Last week, it breached parity with the euro, a crucial psychological milestone. Hedge funds and investment banks across the world say the dollar still has room to run, whether the US hits a recession or not. And don’t even mention Bitcoin’s very bad few months.

The dollar’s recent rise might confound those watching other signals in the economy. Analysts fear recession. Tech companies from Apple to Google and Lyft are slowing hiring or cutting jobs. News that Ford plans to cut as many as 8,000 positions in the coming weeks only added to the general sense of economic malaise.??

The greenback’s strength has to do at least in part with the US Federal Reserve, which has moved faster than other central banks in raising rates to tame inflation. In turn, this has attracted more investors to the dollar, especially compared to the euro.

The dollar is also seen as a haven, which has taken on greater importance as inflation surges, stock markets slump, recession fears grow and the war in Ukraine drags on. Another hypothesis making the rounds online right now is called the “Dollar Milkshake Theory.” As my colleague explains, this oddly named theory posits that all fiat currencies are doomed because they’re not actually valuable. The dollar is slightly better because it’s the global favorite. When the Fed stops making more dollars — the frothy “milkshake” of the title — demand for existing dollars goes up.

Whatever the reason, what should you be doing in this age of dollar strength? Some retail traders have started diving into the risky world of foreign-exchange trading, with some even making triple-digit gains over the past few months. But advisers caution that the cat is already out of the bag on greenback growth, so it may be too late for new entrants. What’s more, the volatility of currency markets makes it especially risky for inexperienced traders.?

Instead of investing in currencies, some Americans are taking advantage of the weak euro to invest in European real estate. It’s typically been retirees and the wealthy who relocate to European destinations. But with housing costs at record levels in the US and the currency stronger than it’s been in decades, Europe suddenly looks like a bargain for regular Americans too. That’s also the case for US travelers making Euro-trips this summer. Prices may be elevated at home, but for Americans used to tougher exchange rates, sangria and Aperol Spritzes may finally seem on sale. — Charlie Wells

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Opinion

In Bloomberg Opinion this week, Teresa Ghilarducci says retirement expenses are too hard to predict:

Saving for retirement in America is so difficult in part because the surprises are so unpredictable — not to mention unpleasant: inflation, outliving your money, going to a nursing home. And our insurance — Social Security — is inadequate. The impossible task of retirement planning reminds me of a New Yorker cartoon I cut out and saved for so long it’s turned yellow: One member of a couple looks up triumphantly from a kitchen table covered in papers and says, “If we take a late retirement and an early death, we’ll just squeak by.”

Read her full article here.

Financial FAQ

How closely should readers pay attention to talk of a possible recession?

The chance of a recession or bad weather is always there, but the probability is sometimes greater. Like now, the probability of an inflation-induced recession has increased. Recessions, like thunderstorms, are usually shorter-term events and are a natural part of the cycle of the economy. The typical recession lasts around 11 months. As a result, recession threats are a good time to review shorter-term financial safety measures like your emergency fund, disability insurance and ability to pay down bad debt in case of a job loss. It is like making sure flashlights have batteries and the generator is working before the power goes out. If shorter-term safety measures are in place and there is extra cash flow, recessions provide a buying opportunity for longer-term riskier investments, like equities. Equity holding periods should be at least five years, usually riding out severe recessions and depressions. — Mark Struthers, Financial Planner at Sona Wealth in Minnesota

Send us questions about your own financial dilemmas: [email protected]