Is the Dollar a Buy?

Brittney Barrett |

us dollarInvestors have reacted to the Federal Reserve’s announcement regarding sluggish global growth and what many investors seem to understand as the committee’s lackluster efforts to insulate the market from its impact. Some have invested directly in volatility, or the VIX while others have exited equities entirely. For months, as volatility rocked the markets, gold and the Swiss franc were meant to soften the blow of flat economic growth in developed nations and a falling green back.

That reversed yesterday; however, as the dollar began to regain its footing and gold started to ease lower from its teetering heights. The U.S. dollar, which many sold off in favor of the franc and other currencies, is regaining its appeal. The tides are turning and the dollar appears to be shifting from something to avoid for safety reasons to something to consider for the same purposes.

In spite of domestic challenges from weakened growth outlooks to unmanageable debt, the dollar is unique in its ability to sustain itself at levels Switzerland and Sweden, among favored currencies of late, cannot. Switzerland, buckling under the strength of its own currency, was forced to set a ceiling on the value of its currency. The price of the franc had been discouraging tourism and exports of its high quality goods, among two main drivers of the nation’s economy.

The U.S. on the other hand is more capable of absorbing large inflows into its currency, likely among the drivers the recent bullishness. The lack of growth and threat of debt contagion in the eurozone has brought the currency down to recent lows, making the dollar seem attractive by comparison, in spite of the range of obstacles it faces. The USD reached its highest level since January after two days of equities sell-offs totaling over 600 points.

Beyond the state of equities, the possibility that the Bank of England will enact further quantitative easing and have to cut rates has also stoked global concern. Growth around the world is slow but debt is mounting. With the eurozone currencies weakening and concern about growth, even emerging markets, previously considered a safe haven are looking less appealing, While Southeast Asia, South America and Brazil have experiences solid growth in recent years, the flat economic momentum in developed nations robs them of a buyer for the goods and services that drive their economies.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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