Market Commentary

Dollar Strength

interest rates

This week the Federal Reserve meets and is very likely to lower interest rates. Normally that would signal a softening of the dollar as holders of our currency would get less in return in buying our U.S. debt. However, the dollar trades as an asset against other currencies, therefore much of its value is based on the strength and weakness of other countries and their treatment of their currency as well as the robustness and sustainability of their economies.

The reason the U.S. dollar is strong is the consistency of our economy and its perceived safety. Even though the FED will lower rates it means little as other countries are easing as well. Our economy looks much stronger than many others and until that changes expect the dollar to hold its relative position.

The one factor being ignored is the amount of debt the U.S. is supporting and that debt continues to grow. At some point it will affect our currency and when that happens the dollar will fall and inflation will rise. That could be years away or it could be much sooner. There is no way to know as it has never happened to the U.S. in the modern era.

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