The U.S. dollar remains strong, defying some skeptics. As has been the case since late 2008 when the Federal Reserve (Fed) began its quantitative easing (QE) program, there has been a great deal of concern recently among some market participants that the dollar is on the verge of a significant decline. Although the dollar may have lost some market share relative to other global currencies in recent decades, it remains the dominant global currency (often referred to as a reserve currency) and we expect it to remain so for the foreseeable future.
The U.S. dollar is getting a lot of attention these days for many reasons. The dollar’s strength this year (+7% year to date based on the DXY U.S. Dollar Index) has had a negative impact on earnings for U.S.-based multinationals and contributed to fears of an “earnings recession” (not our expectation). Commodities, which trade in dollars globally, have been under pressure from the dollar’s strength beyond the impact of fundamental factors such as the slowing Chinese economy and oil’s high-profile global supply glut. Finally, some are worried that the dollar may lose its place as the leading reserve currency, which we discuss below.