In a recent newsletter, I highlighted a trend that's starting to gain the attention of investment markets and that is the strengthening dollar. I wrote that there could be a new headwind forming for US stocks, in the form of US dollar strength. A weak dollar was a tailwind for US stocks for much of 2017 and 2018. However, it has recently started to strengthen. The US Dollar Index (a measure of the dollar against a basket of other currencies) surged to a two year high last week. Crucially it also crossed above the 98 level. From a technical analysis perspective if the Dollar Index is above 98 then it suggests more upside (dollar strength). Much like a strong pound is bad for the FTSE 100, a strong dollar is bad news for US stocks (and emerging markets assets for that matter).
Since I wrote that a lot of column inches and investment headlines have also started discussing the prospect of a stronger dollar and why it is even occurring given the US Federal Reserve's dovish u-turn.
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