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The Truth About the Dollar

I’ve been to Italy four times, including my most recent trip two weeks ago. So it’s really interesting to look at the different foreign exchange rates in place at the time of my various visits.

Just as an example, on this most recent trip I was getting roughly 21% more for my money than the last time I visited four years ago. That makes a huge difference!

Of course, unless they’re frequent travelers, most people don’t really pay attention to how well the greenback is doing against other world currencies. And that’s a shame … especially if they invest.

A Strong Dollar

After the Fed cut rates for the third time this year, the greenback slipped a bit, but the dollar is still pretty darn strong relative to a basket of the world’s major currencies.

So it pays to look at how that affects different types of investments …

For starters, a strengthening dollar can have a big impact on gold, oil, and other commodities.

Now, there are a lot of forces driving gold’s price at any given point in time.

But pull up a chart of the yellow metal and you’ll see that the dollar’s strength typically keeps gold down.

Pull up a chart of oil, and you’ll often see the same basic pattern.

Again, there are all kinds of other factors at play in the oil market – everything from seasonal demand, to geopolitical developments.

But the point is that the greenback has direct – and clearly visible – impacts on various natural resource markets.

It also affects many U.S. stock investments that are unrelated to resources.

Foreign Money, U.S. Companies

A lot of people assume that currency exchange rates don’t matter a whole lot, especially if they stick to domestic stocks.

That’s not necessarily true.

When American companies sell their products abroad, they typically collect the money in foreign currencies then translate those sales back into U.S. dollars.

That means their results can end up getting crimped by unfavorable exchange rates unless they’re using futures or other hedges.