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What's Ahead for the Dollar?

By Matthew Kerkhoff

 

It’s another rough day in the markets with concerns over China continuing to weigh on investors. This time the data point grabbing headlines is China’s industrial profits, which have fallen 8.8% year-over-year.

 

The Fed isn’t exactly helping the situation either. New York Fed President William Dudley reconfirmed that the central bank is likely to raise rates at either the October or December meetings. Most investors aren’t so much worried about what a quarter point rate hike will do to our economy, but rather what the accompanying dollar strength implies for commodities, emerging markets and corporate earnings.

 

There is a basic assumption that rising short-term rates will lead to a stronger dollar. This makes sense at face value, since higher interest rates theoretically attract more demand for dollar denominated assets. I’m guilty of following this line of reasoning, but perhaps things will not play out that way.

 

The chart below shows that during ... Log in or subscribe to continue reading.


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